Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014
Paper-5 : FINANCIAL ACCOUNTING Q1.(a) XYZ Ltd. purchased a machine costing `2,00,000 for its manufacturing operations and paid shipping costs of `30,000. XYZ Ltd. spent an additional `12,000 testing and preparing the machine for use. What amount should MGS record as the cost of machine? Answer: As per As 10, the cost of fixed asset should comprise its purchase price and any attributable cost of bringing the asset to its working condition for its intended use. Cost includes the purchase price, freight and handling charges, insurance cost on the machine while in transit, cost of special foundations, and costs of assembling, installation and testing. Therefore the cost to be recorded is `(2,00,000+30,000+12,000) i.e. `2,42,000.
(b) In preparing the bank reconciliation statement for the month of June 2013, PQ Company has the following data:
Balance as per bank statement Cheques in transit Cheques issued but not presented Bank service charges
` 15,375 1,450 1,925 100
Compute the Bank Balance as per Cash Book . Answer: Bank Balance as per Cash Book =`15,375 + `1,450 - `1,925 + `100 =`15,000. (c) Mega Ltd. deals in three products A,B and C, which are neither similar nor interchangeable. At the time of closing of its account for the year 2012-13 the historical cost and net realizable value of the items of closing stock are determined as below: Items A B C
Historical Cost (` in Lakhs) 22 18 11
Net realizable value (` in Lakhs) 16 18 14
What will be the value of closing stock?
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament)
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Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014 Answer: Computation of value of closing stock ` Lower of Historical Cost and Net Realisable Value will be considered A 16 B 18 C 11 Value of Closing Stock 45 (d) Goods are transferred from Department X to Department Y at a price so as to include a profit of 33.33% on cost. If the value of closing stock of Department Y is ` 54,000, then determine the amount of stock reserve on closing stock. Answer: Stock Reserve on Closing Stock = `54,000×
33.33% =`13,500. 133.33%
(e) M Ltd. purchased a machine of ` 80 lakhs including excise duty of ` 16 lakhs. The excise duty is Cenvatable under the excise laws. The enterprise intends to avail CENVAT credit and it is reasonably certain to utilize the same within reasonable time. How should the excise duty of `8 lakhs be treated? Answer: Treatment of Excise Duty: Particulars
Debit Amount (`)
Credit Amount (`)
Year of Acquisition Machine A/c Dr. 64 CENVAT Credit Receivable A/c Dr. 8 CENVAT Credit Deferred A/c Dr. 8 To, Supplier’s A/c 80 Next Year CENVAT Credit Receivable A/c Dr. 8 To, CENVAT Credit Deferred A/c 8 (f) An company borrowed `28,00,000 for purchase of machinery on 1.6.2013. Interest on loan is 12% per annum. The machinery was put to use from 1.1.2014. What is the amount to be charged for the year ended 31.3.2014 to record the borrowing cost of loan as per AS 16. Answer: Particulars Interest upto 31.3.2013 (28,00,000 x 12% x 10/12 months) (b) Less: interest relating to pre-operative period to be capitalized [2,80,000 x 7/10] Amount to be charged to P & L A/c [2,80,000 x 3/10]
` 2,80,000 1,96,000 84,000
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament)
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Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014 (g) On 12th January, 2013, a fire occurred in the premises of Mr. Sukla, has a textile factory. Most of the stocks were destroyed, cost of stock salvaged being ` 30,000. Estimated value of the stock at the date of fire is ` 2,40,000. Mr. Sukla has insured his stock for ` 1,80,000. Compute the amount of the claim . Answer: ` Statement of claim Particulars Estimated Value of Stock as at date of fire 2,40,000 Less: Value of Salvaged Stock & damaged Stock 30,000 Estimated Value of Stock lost by fire 2,10,000 Average clause is not applied here. Because Estimated value of stock is higher than Insured stock amount. (h) Comptronics sells computers on Hire Purchase basis at cost plus 25%. Terms of sale are ` 20,000 down payment and eight monthly instalments of ` 10,000 for each computer. Three computers were repossessed for non-payment of instalments and to be valued at 50% of cost price. Compute the value of repossessed computers. Answer: Total HP price per computer = Down payment + Instalments = 20,000 + (8 × 10,000) = ` 60,000 HP Price = 125% of cost 1,00,000 cost per computer = = ` 80,000 125% Value of repossessed computers = 50% of cost i.e.( 50% of `80,000) = `40,000 each.
(i) The following information has been extracted from the books of a lessee for the year 2012-2013: Amount(`) Particulars Shortworkings lapsed 16,000 Shortworkings recovered 24,000 Actual royalty based on output 60,000 Answer: Minimum rent = Actual royalty – Shortworkings recovered = `60,000 - `24,000 = `36,000 (j)
Classify the following between Capital and Revenue giving reasons: An old machinery of book value of ` 40,000 worn out, dismantled at a cost ` 10,000 and scraps realized for ` 1,000.
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Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014 Answer: The book value of the dismantled machinery ` 40,000 is a revenue loss as it arose due to under provision of depreciation in the past. Cost of dismantling ` 10,000 is a revenue expense as it does not create any extra benefit. However these are not regular loss/expense and it may also be treated as deferred revenue loss. The sale of scrap ` 1,000 is a capital receipt as it represents sale proceeds of Fixed Asset. Section - A Q2. (a) State with reasons whether the following are Capital Expenditure or Revenue Expenditure: (i) Expenses incurred in connection with obtaining a licence for starting the factory were ` 10,000. (ii) ` 1,000 paid for removal of stock to a new site. (iii) Rings and Pistons of an engine were changed at a cost of `5,000 to get full efficiency. (iv) ` 2,000 spent as lawyer’s fee to defend a suit claiming that the firm’s factory site belonged to the Plaintiff. The suit was not successful. (v) ` 10,000 were spent on advertising the introduction of a new product in the market, the benefit of which will be effective during four years. (vi) A factory shed was constructed at a cost of ` 1,00,000. A sum of ` 5,000 had been incurred for the construction of the temporary huts for storing building materials. (b) Mr. Mrinal could not agree the Trial Balance. He transferred to the Suspense Account of `296,being excess of the debit side total. The following errors were subsequently discovered: (i) Sales Day Book was overcast by `400. (ii) An amount of `55, received from Mr. Y, was posted to his account as `550. (iii) Purchases return book total on a folio was carried forward as `331, instead of `222. (iv) A car sale of `2,235, duly entered in the Cash Book but posted to Sales A/c, as `1,235 (v) Rest of the difference was due to wrong total in Salaries A/c. Show the entries to rectify the above errors and prepare Suspense Account . Answer 2. (a) (i) ` 10,000 incurred in connection with obtaining a license for starting the factory is a Capital Expenditure. It is incurred for acquiring a right to carry on business for a long period. (ii)
` 1,000 incurred for removal of stock to a new site is treated as a Revenue Expenditure because it is not enhancing the value of the asset and it is also required for starting the business on the new site.
(iii) ` 5,000 incurred for changing Rings and Pistons of an engine is a Revenue Expenditure because, the change of rings and piston will restore the efficiency of the engine only and it will not add anything to the capacity of the engine. (iv) ` 2,000 incurred for defending the title to the firm’s assets is a Revenue Expenditure. (v) ` 10,000 incurred on advertising is to be treated as a Deferred Revenue Expenditure because the benefit of advertisement is available for 4 years, ` 2,500 is to be written off every year. (vi) Cost of construction of Factory shed of ` 1,00,000 is a Capital Expenditure, similarly cost of construction of small huts for storing building materials is also a Capital Expenditure.
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament)
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Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014 Answer 2. (b) In the books of Mr. Mrinal Journal Date ? (i)
Particulars
L.F
Sales A/c Dr. To Suspense A/c (Sales Book was overcast, now rectified) YA/c Dr. To Suspense A/c (Amount received from Y `55 wrongly recorded as `550. Now rectified) Returns outward A/c Dr. To Suspense A/c (Total of purchase return book was carried forward as `331, instead of `222 Now rectified) Suspense A/c Dr. To Sales A/c (Cash sales being `2,235, recorded only `1,235 in sales A/c. Now rectified) Suspense A/c Dr. To Salaries A/c (Salary A/c was overcast by `300. Now rectified.
(ii)
(iii)
(iv)
(v)
Debit ` 400
Credit ` 400
495 495
109 109
1,000 1,000
300 300
Suspense Account Dr.
Cr.
To Sales A/c To Salaries A/c (bal. fig.)
` 1,000 300
1,300
` By Difference in T. B. By Sales A/c By Y A/c By Returns Outwards A/c
296 400 495 109 1,300
Q3.(a) Mr. Wise sold goods on credit to various customers. Details related to one of the customer, Mr. Best, is as under: (i) Goods sold on credit ` 7,00,000 (ii) Goods returned by the customer ` 55,000 due to defective quality, credit note raised but not recorded. (iii) Payment received from customer in cash ` 1,00,000 and by cheques ` 2,30,000. Out of cheques received, a cheque of ` 38,000 was dishonoured by bank. (iv) Customer accepted a Bills of ` 56,000 for 3 months. Mr. Best, the customer is in need to ascertain the actual balance due to Mr. Right. Prepare a Reconciliation Statement. (b) State four items which are not to be included in determining the cost of inventories in accordance with paragraph 6 of AS 2?
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Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014 Answer 3. (a) Receivable from Mr. Best - Reconciliation Statement Particulars Credit Sales during the period Less: Goods returned by the Customer, adjustment of credit note Less: Payment received in cash Less: Payment received by cheque less dishonored cheque (2,30,000 38,000) Less: Bills Receivable accepted by Customer, yet to be matured Net Receivable from Customer
Amount (`) 7,00,000 55,000 1,00,000 1,92,000 56,000 2,97,000
Answer 3. (b) In determining the cost of inventories in accordance with paragraph 6 of AS 2, it is appropriate to exclude certain costs and recognize therein as expenses in the period in which they are incurred. Examples of such cost are — (i) abnormal amounts of waste materials, labour or other production costs, (ii) storage costs unless those costs are necessary in the production process prior to a further production stage, (iii) administrative overheads that do not contribute to bring the inventories to their present location and condition, and (iv) selling and distribution cost. (v) Interest and borrowing cost, If AS 16 allows such cost to be included it, can form part of the cost Q4. (a) Determine the value of stock on 31st March, 2013 from the following particulars: Stock was valued on 15th April 2014 and the amount came to ` 1,00,000. (i) Sales ` 82,000 (including cash sales ` 20,000) (ii) Purchase ` 10,068 (including cash purchase ` 3,980) (iii) Returns inward ` 2,000 (iv) On 15th March, goods of the sale value of ` 20,000 were sent on sale or return basis to a customer, the period of approval being four weeks. He returned 40% of the goods on 10th April approving the rest, the customer was received on 16th April. (v) Goods received value ` 16,000 in March for sale on consignment basis; 20% of the goods has been sold by 31st March, and another 50% by 15th April. These sales are not included in above sales. Goods are sold at a profit of 20% on sales. (b) The following is a summary from Cash Book of M/s Mitra Trading for the month of Sept. 2013: Particulars Balance b/d Receipts
` 1,507 15,073 16,580
Particulars Payments Balance c/d
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament)
` 15,520 1,060 16,580
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Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014 On investigation it was found that: (i) Bank charges of ` 35 were not entered in the Cash Book. (ii) A cheque of ` 47 issued to supplier was entered by mistake as a receipt in the Cash Book. (iii) A cheque of ` 81 was returned by the Bank marked as ‘refer to drawer’ but it‘s not entered in Cash Book. (iv) The balance brought forward in Sept. 2013 should have been ` 1,570. (v) Cheque paid to suppliers ` 217 , ` 70 and ` 330 have not been presented for payment. Deposits of ` 1,542 on 30th Sept were cleared by the Bank on 2nd October. (vi) The Bank charged a cheque wrongly to Mitra trading ` 92. (vii)Bank statement shows overdraft of ` 104 as on 30th Sept.2013. Show what adjustments will you make in the Cash Book and prepare a Bank Reconciliation Statement as on 30.09.2013. Answer 4. (a) Stock Reconciliation Statement as on 31st March 2013 Particulars
Amount (`) Amount (`)
Value of Stock as on 15th April 2013
1,00,000
Add: Cost of Goods Sold from 31st March to 15th April : Net Sales (` 82,000 – ` 2,000)
80,000
Less: Gross Profit @ 20%
16,000
Add: Cost of goods sent on approval basis (80% of ` 12,000)
64,000 9,600 1,73,600
Less: Purchase from 31st March to 15th April
10,068
Less: Stock of Consigned goods (30% of ` 16,000)
4,800
Value of stock as on 31st March 2014
14,868 1,58,732
Answer 4. (b) As we know, the errors in the Cash Book must first be corrected and entries that have been missed out in the Cash Book should be recorded. Dr. Cash Book for Sept 2013 Cr. Particulars To Original balance b/d To Error in balance carried (1,570 1,507)
Amount (`) 1,060 63
Particulars By Bank charges not recorded earlier By Cheques issued recorded as receipt, now corrected (2×47) By Cheque returned By Revised balance c/d
Amount (`) 35
1,123 Now we can prepare the Bank Reconciliation Statement.
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament)
94 81 913 1,123
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Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014 Bank Reconciliation from member as on 30.9.2013 Particulars (`)
Amount ` (`)
Balance as per Cash Book Add: Cheques issued but not presented (217 + 70 + 330)
Amount ` 913 617
617
1,530 1542
Less: (i) Deposits not cleared
1,634
92
(ii) Cheques charged by mistake
(104)
Overdraft as per Pass Book
Section – B Q 5. (a) On July 1,2010, River Ltd. purchased a second –hand machinery for `20,000 and spent ` 3,000 on Re-conditioning it. On January 1,2011 , another machinery was purchased worth `12,000. On July 30th, 2012, the machinery purchased on January 1,2011 was sold for ` 8,000. Depreciation is written off @ 10% p.a on original cost. Accounts are closed on March 31 st every year. Prepare Machinery Account for year ending 31st March 2012. (b)Computerized machinery was purchased by two companies jointly. The price shared equally. It was also agreed that they would use the machinery equally and show in their Balance Sheets, 50% of the value of machinery and charge 50% of the depreciation in their respective books of account. Whether the accounting treatment followed by the companies is correct or not.
Answer 5 (a). Dr. Date 2010 July 1 2011 Jan 1
Machinery Account Particulars
To, Bank A/c (Machine-I) (20,000+3,000) To, Bank A/c (Machine-II)
Amount (`) 23,000
Date 2011 March,31
12,000
Cr. Particulars
Amount(`)
By, Depreciation A/c (Machinery-I) – ` 1,725 (for 9 mths) (Machinery-II) - ` 300 (for 3 mths) By, Balance c/d (Machinery-I)- `21,275 (Machinery-II)- 11,700
2011 April 1
To, Balance b/d Machine I- ` 21,275 Machine II- `11,700
35,000 32,975
2,025 32,975 35,000
2012 March 31
By, Depreciation (Machinery-I)- `2,300 (Machinery-II)- `1,200
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament)
3,500
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Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014 By, Balance c/d (Machinery-I)- ` 18,975 (Machinery-II)- ` 10,500 2012 April 1
To, Balance b/d Machine I- `18,975 Machine II- `10,500
32,975 29,475
2012 July 30
2013 March 31
29,475 32,975
By,Depreciation (Machinery-II) (3 months)
400
By, Bank A/c By, P&L A/c
8,000 2,100
By, Depreciation (Machinery-I)-`2,300
2,300 16,675
By, Balance b/d I- ` 16,675 29,475
29,475
Answer 5. (b) As per AS 10 in case of fixed assets owned jointly by enterprises, The extent of the entity’s share in such assets, and the original cost, accumulated depreciation and written down value should be stated in the Balance Sheet in the proportion in which the entity has right to utilize the asset. Alternatively, AS – 10 also recommends, Pro-rata cost of such jointly owned assets may be grouped together with similar fully owned assets and appropriate disclosure of the same should be made. Accordingly, the treatment followed by the companies reflecting 50% of the value of the machinery and charging 50% in their respective books of accounts is proper. However, such jointly owned assets should be indicated, separately in the Fixed Asset Register maintained by the company. Q6.Laxman does not maintain proper books of account. However, he maintains a record of his bank transactions and is also to give the following information from which you are requested to prepare his final accounts for the year 2013: Particulars 01.01.2013 31.12.2013 (`) (`) Debtors 1,02,500 ? Creditors ? 46,000 Stock 50,000 62,500 Bank Balance ? 52,000 Fixed Assets 7,500 9,000 Details of his bank transactions were as follows: Particulars Received from Debtors Additional Capital Brought in Sale of Fixed Assets (Book value ` 2,500)
` 3,40,000 5,000 1,750
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament)
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Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014 Paid to Creditors 2,80,000 Expenses Paid 50,250 Personal Drawings 24,000 Purchase of Fixed Assets 5,000 No cash transactions took place during the year. Goods are sold at cost plus 25%. Cost of goods sold was ` 2,60,000. Answer 6 Laxman Trading and Profit and Loss Account for the year ended 31st December, 2013 Dr. ` Particulars Particulars To Opening Stock 50,000 By Sales A/c (Note 6) To Purchases (Note 7) 2,72,500 By Closing Stock To Gross Profit (c/d) 65,000 3,87,500 To Expenses 50,250 By Gross Profit b/d To Depreciation on Fixed Assets 1,000 To Loss on Sale of Fixed Assets 750 To Net Profit c/d 13,000 65,000 Balance Sheet of Lucky as at 31st December, 2013 Particulars Capital Account: Opening Balance (Note 5) Add: Capital Introduced Add: Net Profit Less: Drawings Creditors
` 1,71,000 5,000 13,000 1,89,000 24,000 1,65,000 46,000 2,11,000
Particulars Fixed Assets Stock Debtors (Note 3) Bank
Cr. ` 3,25,000 62,500 3,87,500 65,000
65,000
` 9,000 62,500 87,500 52,000
2,11,000
Working Notes: (1) Bank Account Dr. Particulars To Balance b/d (Balancing figure) To Debtors A/c To Capital A/c To Fixed Assets A/c (Sale)
Cr. ` 64,500 3,40,000 5,000 1,750 4,11,250
Particulars By Creditors A/c By Expenses A/c By Drawings A/c By Fixed Assets A/c (Purchase) By Balance c/d
` 2,80,000 49,250 25,000 5,000 52,000 4,11,250
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Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014 (2) Fixed Assets Account Dr.
Cr. ` 7,500 5,000
Particulars To Balance b/d To Bank A/c
Particulars By Bank A/c By Loss on Sale of Fixed Assets A/c By Depreciation A/c (Balancing figure) By Balance c/d
12,500
` 1,750 750 1,000 9,000 12,500
(3) Debtors Account Dr. ` 1,02,500 3,25,000 4,27,500
Particulars To Balance b/d To Sales A/c (Note 6)
Particulars By Bank A/c By Balance c/d (Balancing figure)
Cr. ` 3,40,000 87,500 4,27,500
(4) Creditors Account Dr. ` 2,80,000 46,000 3,26,000
Particulars To Bank A/c To Balance c/d
Particulars By Balance b/d (Balancing figure) By Purchases A/c (Note 7)
Cr. ` 53,500 2,72,500 3,26,000
(5) Balance Sheet as at 31st January, 2013 Dr. Liabilities Capital (Balancing figure) Creditors (Note 4)
` 1,71,000 53,500
Assets Fixed Assets Debtors Stock Bank (Note 1)
2,24,500
(6) Calculation of Sales Particulars Cost of goods sold Profit 25% Sales
Cr. ` 7,500 1,02,500 50,000 64,500 2,24,500
Amount (`) 2,60,000 65,000 3,25,000
Q7.(a) On 31.12.2012, Sundry Debtors and Provision for Bad Debts are ` 50,000 and ` 5,000 respectively. During the year 2013, ` 3,000 are bad and written off on 30.9.2013, an amount of ` 400 was received on account of a debt which was written off as bad last year on 31.12.2013, the debtors left was verified and it was found that sundry debtors stood in the books were ` 40,000 out of which a customer Mr. X who owed ` 800 was to be written off as bad. Prepare Bad Debt Account. Provision for bad Account. assuming that some percentage should be maintained for provision for bad debt as it was on 31.12.2012. Show also how it will appear in Profit & Loss Account. and Balance Sheet. Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 11
Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014 (b) P, Q and R were in partnership sharing profits and losses in the ratio of 3 : 2 : 1. The Balance Sheet as on 31.3.2013 is as under : Liabilities Amount Assets Amount ` ` Capital – P
60,000
Machinery
80,000
Capital - Q
50,000
Furniture
15,000
Capital – R
40,000
Motor Car
30,000
Sundry Creditors
72,000
Stock
50,000
Bank Loan
30,000
Sundry Debtors
60,000
Other Liabilities
20,000
Cash at Bank
37,000
2,72,000
2,72,000
P retired on 1.9.2013 and the partnership deed provided inter alia that in the event of admission, retirement or death of a partner, the assets and liabilities are to be revalued and that goodwill of the firm is to be computed on the basis of 2 years purchase of the correct profit of the last 4 years. During the period he drew `30,000, interest on drawings @ 6% p.a. It is discovered that the accounts required adjustments owing to certain mistakes in earlier years. On 1.10.2010 repairs to machinery for ` 6,000 had been wrongly debited to the Machinery Account, and on 1.4.2011 a piece of furniture, whose book value was `2,000 was disposed of for `800 but the proceeds were wrongly credited to Sales Account. The partners had been charging depreciation on all fixed assets at 10% p.a. on the reducing balance system on a time basis. Profits for the last four years without adjusting the above mentioned mistakes were as follows: 2009-10 `20,000; 2010-11 `24,000; 2011-12 `32,000; 2012-13 `36,000. Revaluation on the date of retirement was: Machinery- `90,000; Furniture- `10,000; Motor car - `22,000. Partner will also be given proportionate share of profits based on the last year’s profit. Determine the amount to be paid to the retiring partner. Answer 7. (a) In the books of ………. Dr. Date
Bad Debt Account Particulars
2013 Sept. 30
To, Sundry Debtors A/c
Dec. 31
To, X A/c.
Amount (`)
Date
Cr. Particulars
3,000 2013 By, Provision for Bad Debt Dec. 31 A/c
Amount (`) 3,800
800 3,800
3,800
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Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014 Dr.
Provision for Bad Debt Account
Date
Particulars
Amount (`) Date
2013 Dec. 31
To, Bad Debt A/c “ Balance c/d
Cr.
Particulars
3,800 2013 3,920 Dec. 31
[10% on ` 39,200, (` 40,000 - ` 800)]
Amount (`)
By, Balance b/d
5,000
“ Profit & Loss A/c -for the provision required
2,720
7,720
7,720
Workings : Calculation of ‘%’ of Provision for bad debts — (5,000/50,000 × 100) = 10% Profit & Loss Account (Extract) Dr.
For the year ended 31.12.2012
Particulars
Amount (`)
Cr.
Amount Particulars (`)
To, Bad Debts
Amount (`)
3,400 By Bad Debts Recovery A/c ”
Amount (`) 400
Provision for Bad Debts: Existing Less: Provision Required
5,000 3,920
1,080
Balance Sheet (Extract) As at 31.12.2013 Liabilities
Amount (`)
Assets
Amount (`) Amount (`)
Sundry Debtors
40,000
Less: Bad Debts
800 39,200
Less: Provision for Bad Debts
3,920
35,280
Answer 7. (b) Statement showing computation of the amount to be paid to the retiring partner: Particulars Capital Share of Loss on revaluation Proportionate share of goodwill [`52,880 ×
3 ] 6
Amount(`) 60,000 (808) 26,440
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Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014 Proportionate share of last year’s profit 3 5 [`36,693 × ] 6 12 Drawings 6 5 1 Interest on Drawings[`30,000 × ] 100 12 2 Amount to be paid to the retiring partner
7,644
(30,000) (375) 62,901
Workings: A. Dr.
Revaluation Account
Date
Particulars To, Motor Car A/c
` 8,000
To, Furniture A/c To, Partner’s Capital A/c (P-` 808; Q-` 539; R-` 270)
5,000 1,617
Date
Cr. ` 14,617
Particulars By, Machinery A/c
14,617
14,617
B. Ascertainment of Adjusted Profits 2009-10 ` Profits without adjustment
20,000
Less : Repairs previously capitalised
2010-11 ` 24,000
2012-13 `
32,000
36,000
(+) 570
(+) 513
(–) 6,000
Add : Depreciation wrongly charged on the above
(+) 300
Less : Sale of Furniture wrongly credited to Sales
(–) 800 (–) 1,200
Less : Loss on sale of Furniture not recorded (` 2,000 – 800) Add : Depreciation on Furniture wrongly provided Adjusted Profits
2011-12 `
20,000
18,300
(+) 200
(+) 180
30,770
36,693
C. Ascertainment of the Value of Goodwill and its Adjustment Aggregate adjusted profits for 4 years: ` 1,05,763; Average Profits — `1,05,763 / 4 = ` 26,440. Goodwill at 2 years’ purchase of average profit = ` 52,880 (` 26,440 × 2).
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 14
Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014 Q8.(a) Provision for Unrealized Profit, Reconciliation Statement to be prepared, statement of Income etc. The following information is available: Debit: Head Office Branch ` ` 3,200 Branch Account 3,000 800 Closing Stock 22,000 9,300 Cost of Sales 7,000 1,000 Other Expenses 35,000 15,000 Credit: Sales 900 Head Office Account The Branch receives all its supplies from the H.O. which are invoiced to it at 25% profit over cost. During the year 2013, the H.O. sent bills to the branch for `9,500. The H.O. credits its Sales Account with the invoice price of goods supplied to the Branch. The stock of goods at the H.O. on 1st Jan. 2013 was ` 2,500 and that at the Branch was ` 600. The H.O. has billed the branch for ` 1,200 on 31.12.2012 representing the branch's share of expenses incurred by the H.O. The said expenses have not been recorded in the books of the Branch. All cash collections made by the Branch are deposited in a local bank to the account of the H.O. Deposits of this nature included : Amount Date of deposit by Branch Date of receipt by H. O. ` ` ` 800 24.12.2013 30.12.2013 700 25.12.2013 31.12.2013 500 29.12.2013 03.01.2014 300 31.12.2013 04.01.2014 The expenses of the branch are met by the H.O. from time to time for which amounts are sent in advance to the branch. A sum of ` 300 sent to the branch by the H.O. on 29th Dec. 2013, towards meeting the expenses was received by the branch on 2.1.2013. You are required to prepare : (1) A reconciliation of Head Office Account in the Branch books and that of Branch Account in the Head Office books. (2) A Statement of Income for the year for the H.O. and the Branch. (b) The Secretary of The Systematic Club has prepared the following draft Balance Sheet of the Club as on 30.9.2013: Liabilities Capital Account: Balance as on 30.9.2013 Less: Loss for the year Subscriptions in Advance Creditors
`
14,300 2,100
Assets Fixtures and Fittings: As on 30.9.2013 12,200 Less: Depreciation for the year 600 Stock 2,400 Debtors Balance at Bank Cash in Hand 15,200
` 10,600 1,000
9,600 3,200 1,400 950 50 15,200
You ascertain the following: A. The amount of loss was only a balancing figure as the books had been kept on a single entry basis. Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 15
Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014 B. The balance at bank was that shown by the bank statement at the close of the business on 30.9.2013. C. The following amounts had been paid into bank on 30.9.2013 but had not been credited by the bank: (i) Two cheques of ` 50 each had been cashed for a member—one had since been duly honoured but the other had been returned marked 'refer to drawer' and, on being approached, the member repaid ` 50 in cash. (ii) A member's subscriptions of ` 80 for the year 2013-14. D. The following cheques had been drawn in September but has not been presented until October : (i) ` 480 for bar supplies which had been delivered but had not been included in stock; (ii) ` 350 for additional typewriter received on October 2; (iii) ` 100 as bonus of the professional included under the creditors; (iv) `140 for fuel which had been included in the stock figure but not in the creditors and this cheque was dated October 1, 2013. You are required to prepare: (i) a bank reconciliation statement as on 30.9.2013; and (ii) a revised Balance Sheet as on the date to give effect to the consequential adjustments, assuming that otherwise the items in the draft Balance Sheet were correct. Answer 8. (a) (1) In the books of head office Reconciliation of Branch Account and Head Office Account As at 31st Dec. 2013 ` Balance of Branch Account in H. O. books Less: Share of expenses incurred by H. O. and not recorded in Branch books Remittance by H. O. but not received by the branch within 31.12.2013 Remittance by Branch but not received by H. O. within 31.12.13 (500 + 300) Balance of H. O. Account in Branch Books
1,200 300 800
Statements of Income for the year ended 31st Dec. 2013 Head Office Branch Head Office ` ` ` Opening Stock 2,500 600 Sales 25,500 Purchases 21,500 - Closing Stock 3,000 Goods from H. O. 9,500 Goods Sent to Br. 9,500 Expenses 7,000 1,000 Provision for Share of H. O.’s Exps. 1,200 Unrealized Profit Provisions for Unrealised on opening Stock of branch (`600 x Profit on closing stock of branch (800 x 1/5) 160 - 1/5) 120 Net Income 6,960 3,500 38,120 15,800 38,120
` 3,200
2,300 900
Branch ` 15,000 800 -
15,800
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 16
Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014 Answer 8. (b) (i) Bank Reconciliation Statement of The Systematic Club as on 30th September, 2013 Club Bank balance as per Bank Statement Add : Cheque dishonoured but not entered in the Cash Book Cheque deposited but not credited
950 50 80
Less: Cheques issued but not presented for payment: Bar supplies Advance for office equipment Bonus of the professional Fuel (Note 1) Bank Balance as per Cash Book
130 1,080
480 350 100 -
930 150
(ii) Balance Sheet of The Systematic Club as at 30th September, 2013 `
Liabilities Capital Fund: Opening balance Less: Excess of Expenditure over Income (Balancing figure)
14,300 2,140
Subscriptions in Advance ` (600 + 80) Creditors (Note 3)
`
Assets
12,160 Furniture and Fittings Less: Depreciation
`
` 10,600 1,000 9,600
Stock : ` (3,200 + 480) Debtors 680 Advance for Office Equipment (Note 2) 2,440 Bank 15,280 Cash : ` (50 + 50)
3,680 1,400 350 150 100 15,280
Working Notes : (1)
No adjustment is required for ` 140 for fuel since the cheque was dated October 1.
(2)
Since the typewriter was not received before 30.9.2013, it should be shown as an advance for office equipment in the Balance Sheet on 30.9.2013.
(3)
Ascertainment of correct balance of creditors. Creditors Account
Dr. Date
Particulars To Bonus of Professional (cancelled) To Balance c/d
` Date Particulars 100 By Balance c/d 2,440 By Fuel (previously recorded) 2,540
Cr. ` 2,400 not 140 2,540
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 17
Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014 Q9. Jamnadas provides you with the following T. B. as on 31st March 2013. Particulars Stock as on 1st April 12 Depreciation
Debit (`) 35,000 5,000
Accumulated depreciation Fixed asset Loss on sale of fixed asset Investments
Credit (`)
40,000 50,000 8,000 1,25,000
Profit on sale of investments
80,000
Sales at 20% gross margin
800,000
Purchases
7,50,000
Customers’ accounts
1,00,000
20,000
5000
60,000
Creditors’ accounts Expenses
42,000
Discount
18,000
12,000
Commission
50,000
80,000
Amounts due to principals Amounts due from dealers Deposits with Principals
8,000 75,000 1,00,000
Deposits from dealers Cash
1,50,000 7,000
Income on investments
5,000
Interest on deposits with Principals Interest on deposits from dealers Prepaid/outstanding expenses As on 31st March 2012 As on 31st March 2013 Fixed deposits with bank
12,000 18,000 7,000 9,000 2,00,000
Interest on fixed deposits with bank Drawings/Capital
13,000 6,000
20,000 60,000
3,00,000
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 18
Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014 Particulars
Debit (`)
Credit (`)
Banks
58,000
Total
16,64,000
16,64,000
The cost of fixed assets sold is ` 30,000, accumulated depreciation being ` 9,000. Prepare the financial statements. Also, separately show Accumulated depreciation Account, and Expenses Account. Answer 9. Dr. Date
Accumulated Depreciation Account Particulars
Amount (`)
31-Mar-13 To, Asset (sold) 31-Mar-13 To, Balance c/d
Date
9,000 1- Apr-12 40,000
Particulars By Balance b/d (balancing figure)
31 -Mar-13 By P & L (depreciation) 49,000
Expenses Account
Date
Particulars
1-Apr-12
To, Balance (pre paid)
Amount (`) Date
31-Mar-13 To, Cash paid (balancing figure) 31-Mar-13 To, Balance b/d (due)
Dr.
7,000 1- Apr-12
Particulars By, Balance b/d (due)
Purchases
40,000
Amount (`) 13,000 36,000
6,000 31-Mar-13 By, Balance c/d (pre paid)
9,000 58,000
9,000
By, Balance b/d (due)
Amount (`) Particulars
Opening stock Finished goods
5,000
45,000 31-Mar-13 By, P & L A/c (42,00013,000+7,000)
Trading Account for the year ended 31st March 2013
Particulars
44,000
Cr.
58,000 To Balance b/d (pre paid)
Amount (`)
49,000 By balance b/d
Dr.
Cr.
Sales
6,000
Cr. Amount (`) 8,00,000
35,000 7,50,000 Closing stock:
Gross Profit c/d (8,00,000×20%)
1,60,000 Finished goods (Balance in fig.)
1,45,000
9,45,000
9,45,000
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 19
Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014 Dr.
Profit and Loss Account for the year ended 31st March 2013
Particulars
Amount (`) Particulars
Administrative expenses
Amount (`)
- Gross Profit b/d
Expenses
Cr.
1,60,000
42,000 Profit on sale of investment
80,000
Depreciation
5,000 Discount received
12,000
Loss on sale of fixed asset
8,000 Commission received
80,000
Discount allowed
18,000 Income from investments
Commission given
50,000 Interest deposits with principals
12,000
Interest on deposits to dealers
18,000 Interest bank deposits
20,000
Net profit
5,000
2,28,000 3,69,000
369,000
Sales
8,00,000
Gross margin on sales @ 20%
1,60,000
Cost of goods sold
6,40,000
Goods available for sale
7,85,000 (this is op stock 35,000 + purchases 750,000)
Hence, closing stock should be
1,45,000 (785,000- 640,000)
Now, the balance sheet is given below. Balance Sheet as on 31st March 2013 Liabilities
Amount (`)
Amount (`)
Assets
Jamnadas’s Capital
3,00,000
Fixed Assets:
Less: Drawings
(60,000)
Less: Acc. Dep for sold
Add: Net Profit for the year
2,28,000
4,68,000 Balance of assets
Amount (`) 80,000 (30,000) 50,000
Depreciation opening
44,000
Long term Liabilities:
Less: Acc Dep for sold
(9,000)
Current Liabilities:
Add for the year
Sundry creditors
60,000 Net Acc. Dep
Advance from Customers
20,000 Net fixed Asset
Dues to Principals
Amount (`)
5,000 40,000 10,000
8,000
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 20
Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014 Bank overdraft
58,000 Investments
Outstanding expenses Deposits from dealers
1,25,000
6,000 1,50,000 Current Assets: Stocks
1,45,000
Sundry debtors
1,00,000
Deposits with Principals
1,00,000
Cash in hand
1,000
Fixed deposit with Bank
2,00,000
Dues from dealers
75,000
Advance to suppliers
5,000
Prepaid expenses
9,000
7,70,000
7,70,000
Please carefully interpret the balances given. Customer balances are in debit as well as credit column. While debit indicates Debtor and credit means advances received from customers. Same logic will apply to suppliers, commission, discounts. Computation of closing stock was very important in this case. Q10.(a) The following was the Balance Sheet of A, B and C who shared profits in the ratio of 1 : 2 : 2 as on 31st December, 2013. Liabilities Sundry Creditors Capital Account : A B C
Amount (`) 10,000
Assets Goodwill Debtors
10,000 20,000 20,000
50,000
General Reserve
5,000
Machinery
Investment Fluctuation Fund Bad Debts Reserve Bank Loan
3,000
Buildings
2,000 30,000 1,00,000
Stock Cash at Bank Investments
Amount (`) 15,000 10,000
20,000 30,000 10,000 5,000 10,000 1,00,000
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 21
Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014 C died on 31st March, 2014. His account is to be settled under the following terms : Goodwill is to be calculated at the rate of 2 years purchase on the basis of the average of 5 years profit or loss. Profit for January to March’ 14 is to be calculated proportionately on the average profit of 3 years. The profits were: 2009 ` 3,000, 2010 ` 7,000, 2011 ` 10,000, 2012` 14,000, 2013 loss ` 12,000. During 2013 a Moped costing ` 4,000 was purchased and debited to Travelling Expenses Account on which depreciation is to be calculated @ 25%. Other values agreed on assets are: Stock ` 12,000, Building ` 35,000, Machinery ` 25,000 and Investments ` 8,000. Debtors are considered good. Prepare new Balance Sheet of the firm, necessary Journal entries and Ledger Accounts of the Partners. (b) The Accountant of City Club furnished the following information about the Receipts and Payments of the club for the year ended 31st March, 2013: Receipts To Subscriptions “ Fair Receipts “ Variety show Receipts (net) “ Interest “ Bar Collections
` 62,130 7,200 12,810 690 22,350
`
Payments By Premises “ Rent “ Rates and Stationery “ Printing & Stationery “ Sundry Expenses “ Wages “ Fair Expenses “ Honorarium to Secretary “ Bar Purchases (Payment) “ Repairs “ New Car (less proceeds of old car ` 9,000)
30,000 2,400 3,780 1,410 5,350 2,520 7,170 11,000 17,310 960 37,800
The following additional information could be obtained : 1.4.12 (`)
31.3.13 (`)
450
NIL
24,420
10,350
270
90
3,600
2,940
Premises at cost
87,000
117,000
Provision for Depreciation on Premises
56,400
Car at cost
36,570
Accumulated Depreciation on Car
30,870
Cash in hand Bank Balance as per Cash Book Cheque issued for Sundry Expenses not presented to the bank (entry has been duly made in the Cash book) Subscriptions Due
46,800
Bar Stock
2,130
2,610
Creditors for Bar Purchases
1,770
1,290
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 22
Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014 Annual Honorarium to Secretary is ` 12,000 Depreciation on Premises is to be provided at 5% on written down value. Depreciation on new car is to be provided at 20%. You are required to prepare Receipts and Payments Account and Income and Expenditure Account for the year ended 3 1.3.13. Answer 10 (a) . Working Notes : A.
Adjusted profit for 2013
` (12,000)
Profit Add :
Cost of Moped Wrongly treated as Travelling Expense
Less :
Depreciation not charged on Moped @ 25% on ` 4,000 (1,000) Adjusted Profit
4,000
(9,000)
B. Valuation of Goodwill Total Profit/Loss for the last 5 years = 3,000 + 7,000 + 10,000 + 14,000 – 9,000 = ` 25,000 Average Profit = ` 25,000/5 = ` 5,000; Goodwill = 2 × ` 5,000 = ` 10,000 But Goodwill is appearing at Balance Sheet at ` 15,000. Over valuation of Goodwill ` 5,000 should be written off among A, B & C as 1 : 2 : 2. The balance of Goodwill between A & B in the ratio 1:2 C. Share of Profit of Deceased Partner till his date of death Average Profit of the last 3 years [ 2011, 2012 & 2013] = (10,000 + 14,000 – 9,000)/3 = ` 5,000 Estimated Profit for 3 months [Jan to March, ‘14] = ` 5,000 x 3/12 = ` 1,250 C’s share of profit = ` 1,250 × 2/5 = ` 500 Books of A, B & C Journal Entries Date 31.03.14
Amount (`) Amount (`)
Particulars Stock A/c Buildings A/c Machinery A/c Moped A/c [4,000 –Depr. 1,000] To Revaluation A/c [Values of assets increased on revaluation]
Dr. Dr. Dr. Dr.
General Reserve A/c Investment Fluctuation Fund A/c Bad Debts Reserve A/c To A’s Capital A/c To B’s Capital A/c To C’s Capital A/c
Dr. Dr. Dr.
2,000 5,000 5,000 3,000 15,000 5,000 3,000 2,000
2,000 4,000 4,000
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 23
Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014 [Transfer of Reserves etc. to Partners Capitals in 1:2:2] Revaluation A/c Dr. To Investment A/c [Value of investments reduced] Revaluation A/c To A’s Capital A/c To B’s Capital A/c To C’s Capital A/c (Being profit on revaluation shared in 1:2:2)
Dr.
13,000
A’s Capital A/c B’s Capital A/c C’s Capital A/c To Goodwill A/c [Value of Goodwill reduced] Profit & Loss Suspense A/c To C’s Capital A/c [Estimated share of Profit till his date of death
Dr. Dr. Dr.
1,000 2,000 2,000
C’s Capital A/c transferred to the decreased partner’s To C’s Executors A/c Capital] [Total dues to the deceased partner transferred to his Executor’s A/c]
Dr.
Dr. Date
31.3.14
2,000
2,000
2,600 5,200 5,200
5,000 Dr.
500 500 27,700 27,700
Capital Account Particulars
To Goodwill A/c To, Goodwill A/c
A
B
C
`
`
`
1,000
3,333
2,000
6,667
To C’s Executors A/c (Balance transferred)
Date
20,533
14,600
29,200
Particulars
2,000 1.1.13 By Balance b/d
–
27,700
To Balance c/d 10,267
Cr.
– 29,700
31.3.1 4
A
B
C
`
`
`
10,000
20,000 20,000
”Revaluation A/c
2,600
5,200
5,200
” Sundry Reserves A/c
2,000
4,000
4,000
–
–
500
” P/L Suspense A/c
14,600
29,200 29,700
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 24
Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014 A and B Balance Sheet as at 3 1.3.2014 Liabilities
Amt `
Amt
Capital A/cs : A B C’s Executor’s A/c Bank Loan Sundry Creditors
10,267 20,533
Assets
`
30,800 27,700 30,000 10,000
Amt `
Amt `
Buildings
35,000
Machinery Moped (cost less depreciation) Investments Stock Debtors Bank Profit &Loss Suspense A/c (Dr.)
25,000 3,000
98,500
8,000 12,000 10,000 5,000 500 98,500
Answer 10 (b) Working Notes : ` (1) Depreciation on New Car : Net Amount Add : Sale proceeds of Old Car
37,800 9,000
Actual Cost Depreciation @ 20%
46,800 9,360 37,440
Less :
(2) Profit on sale of Old Car : Sale proceeds Less: Written Down Value : Cost - 36,570 Provision for Depreciation
9000
- 30,870 5700
Profit on Sale
3300
(3) Cheques issued for Sundry Expenses not presented to the Bank need not be considered as Bank Balance as per Cash Book is given and the entry for the expenses have been duly made in the Cash Book.
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 25
Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014 (4) Calculation of Bar Purchases Dr.
Creditors for Bar Purchases Account `
Particulars To cash Payment for Bar Purchases To Balance c/d
17,310 1,290
Particulars
Cr. `
By Balance b/d
1,770
By Purchases (Balance Figure)
16,830
18,600
18,600
(5) Dr.
Bar Trading Account for the year ended 31.03.13 `
Particulars To Opening stock To Bar Purchases To Income & Expenditure A/c profit from Bar transfered
Dr.
2,130 16,830
Particulars By Bar collections By Close stock
6,000 24,960
Amount `
ToBalance b/d : “ Cash in hand “ Cash at Bank “ Subscriptions
450 24,420 62,130
“ Fair Receipts “ Variety Show Receipts (Net) “ Interest “ Bar Collections
7,200 12,810 690 22,350
“ Sale Proceeds of Old Car
9,000
1,39,050
` 22,350 2,610
24,960
City Club Receipts and Payments Account for the year ended 31st March, 2013
Receipts
Cr.
Payments
Cr. Amount `
By Premises
30,000
“ Rent “ Rates & Taxes “ Printing & Stationery “ Sundry Expenses “ Wages “ Fair Expenses “ Honorarium to Secretary “ Payments for Bar Purchases
2,400 3,780 1,410 5,350 2,520 7,170 11,000 17,310
“ Repairs “ Cost of New Car “ Balance c/d : Cash at Bank
960 46,800 10,350 13,9050
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 26
Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014 City Club Income and Expenditure Account for the year ended 31st March, 2013 Dr.
Cr.
Expenditure
Amount Amount ` `
To Rent
2,400 By Subscription
Rates & Taxes “ “
Printing & Stationery Wages
“ “
Honorarium to Secy. Add: O/S on 31.3.08
“ “
Sundry Expenses Repairs
“
Depreciation : On Car [Note 1] On Premises [5% of 60600]
“
Surplus (Excess of Incomes over Expenditure, transfer to Capital Fund)
Income
3,780 1,410 2,520 11000 1000
Add: Amount Due On 31.3.08
Amount `
`
62,130 2,940 65,070
Less: Amount Due31.3.07 On
3,600
61470
12,000 “ Profit on Sale of 5,350 Old Car [Note 1] 960 “ Profit from Bar
3300
[Note 5] 9360 3030
Amount
6000
“ Variety Show 12,390
Receipts (net)
“ Income from Fair : Receipts Less : Expenses 43,490 “ Interest 84,300
12810 7200 7170
30 690 84,300
Q11.(a).The firm of M/s LMS was dissolved on 31.3.2008, at which date its Balance Sheet stood as follows: ` ` Liabilities Assets Creditors Bank Loan L’s Loan Capitals : L M S
2,00,000 Fixed Assets 5,00,000 Cash and Bank 10,00,000
45,00,000 2,00,000
15,00,000 10,00,000 5,00,000 47,00,000 47,00,000 Partners share profits equally. A firm of Chartered Accounts is retained to realise the assets and distributed the cash after discharge of liabilities. Their fees which are to include all expenses is fixed at ` 1,00,000. No loss is expected on realisation since fixed assets include valuable land and building. Realizations are : 1st ` 5,00,000, 2nd ` 15,00,000, 3rd ` 15,00,000, 4th ` 30,00,000, 5th ` 30,00,000. The Chartered Accountant firm decided to pay off the partners in ‘Higher Relative Capital Method’. You are required to prepare a statement showing distribution of cash with necessary workings. Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 27
Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014 (b) Journalize the following transactions in the books of Head Office. Delhi Branch and Agra Branch: (i) Goods worth ` 50,000 are supplied by Delhi Branch to Agra Branch under the instructions of Head Office. (ii) Delhi Branch draws a bill receivable for ` 40,000 on Agra Branch which sends its acceptance. (iii) Delhi Branch received ` 10,000 from Agra Branch. (iv) Goods worth ` 20,000 were returned by a customer of Agra Branch to Delhi Branch. (v) Agra Branch collected ` 20,000 from a customer of Delhi Branch. (c) A. Ltd. obtain from B.S. Ltd. a lease of some coal-bearing land, the terms being a royalty of ` 15 per ton of coal raised subject to a minimum rent of ` 75,000 p.a. with a right of recoupment of short-working over the first four years of the lease. From the following details, show (i) Short-working Account, (ii) Royalty Account and (iii) B.S. Ltd. Account in the books of A. Ltd. Year
Sales (Tons) `
2009 2010 2011 2012 2013
2,000 3,500 4,800 5,600 8,000
Closing Stock (Tons) ` 300 400 600 500 800
Answer 11(a). Piecemeal Distribution Statement under Higher Relative Capital Method: Particulars Amount Creditors Bank L’s L Available Loan Loan Balance due 2,00,000 5,00,000 10,00,000 15,00,000 1st Installment (including Cash & Bal.) 5,00,000 Less: Liquidator’s Exps & Fees (1,00,000) Balance 4,00,000 2,00,000 5,00,000 10,00,000 15,00,000 Less: Crs & Bank Loan paid in ratio of (4,00,000) (1,14,286) (2,85,714) balance o/s, i.e. 2: 5 Balance 85,714 214,286 10,00,000 15,00,000 nd 2 Installment 15,00,000 Less: Creditors & BK Loan fully paid (3,00,000) (85,714) (2,14,286) Balance 12,00,000 NIL NIL 10,00,000 15,00,000 Less: Repayment (10,00,000) (10,00,000) of L's Loan -
(`) M
S
10,00,000
5,00,000
10,00,000
5,00,000
-
-
10,00,000
5,00,000
10,00,000
5,00,000
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 28
Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014 Balance 2,00,000 NIL NIL Less: Paid to L towards Higher (2,00,000) Relative Capital Balance 3rd Instalment 15,00,000 Less: Paid to L towards Higher (3,00,000) Relative Capital Balance 12,00,000 Less: Paid to L and M towards (10,00,000) Excess Capital Balance 2,00,000 Less: Payment to all Partners equally (2,00,000) Balance Due 4th Instalment 30,00,000 Less: Payment to all Partners equally (30,00,000) Balance Due 30,00,000 5th Instalment Less: Payment to all Partners equally (30,00,000) Excess being Realisation Profit credited to all Partners
NIL
15,00,000
10,00,000
5,00,000
-
(2,00,000)
-
-
-
13,00,000
10,00,000
5,00,000
-
(3,00,000)
-
-
-
10,00,000
10,00,000
5,00,000
-
(5,00,000)
(5,00,000)
-
-
5,00,000
5,00,000
5,00,000
-
(66,667) 4,33,333
(66,667) 4,33,333
(66,666) 4,33,334
(10,00,000) (10,00,000) (10,00,000) (5,66,667) (5,66,667) (5,66,666)
(10,00,000) (10,00,000) (10,00,000) (15,66,667) (15,66,667) (15,66,666)
Working Notes:
A B C D E F G H I (ii)
(i) Statement showing the computation of Highest Relative Capital Particulars L M S Actual Capitals 15,00,000 10,00,000 5,00,000 Profit Sharing Ratio 1 1 1 Actual Capital × Profit Sharing Ratio 15,00,000 10,00,000 5,00,000 Proportionate Capital taking S’s Capital as Base Capital 5,00,000 5,00,000 5,00,000 Surplus Capital (A - D) 10,00,000 5,00,000 — Profit Sharing Ratio 1 1 — Surplus Capital × Profit Sharing Ratio 10,00,000 5,00,000 — Revised Proportional Capital taking M’s Capital as Base Capital 5,00,000 5,00,000 — Revised Surplus Capital (E - G) 5,00,000 — — Scheme of Distribution : First ` 5,00,000 will be paid to L, next ` 10,00,000 will be distributed between L and M in their profit sharing (i.e. 1 : 1) and the balance will be distributed among L, M and S in their profit sharing ratio (i.e. 1 : 1 : 1).
(iii) It has been assumed that the amounts of realisation given in the question pertain to realisation of fixed assets. Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 29
Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014 Answer 11(b). Journal of Head Office Particulars
L.F.
(a) Agra Branch A/c Dr. To Delhi Branch A/c (Being the goods supplied by Delhi Branch to Agra Branch) (b) Delhi Branch A/c Dr. To Agra Branch A/c (Being a B/R drawn by Delhi upon Agra Branch) (c) Delhi Branch A/c Dr. To Agra Branch A/c (Being Cash sent by Agra Branch to Delhi Branch) (d) Delhi Branch A/c Dr. To Agra Branch A/c (Being the goods returned by customer of Agra Branch to Delhi Branch) (e) Agra Branch A/c Dr. To Delhi Branch A/c (Being the Cash collected by Agra Branch from a customer of Delhi Branch
Dr. (`)
Cr. (`)
50,000 50,000 40,000 40,000 10,000 10,000 20,000 20,000
20,000 20,000
Journal of Delhi Branch Particulars (a) H.O. A/c
L.F. Dr.
Dr. (`)
Cr. (`)
50,000
To Goods sent to Branch A/c
50,000
(Being the goods supplied to Agra Branch) (b) Bills Receivable A/c
Dr.
40,000
To H.O. A/c
40,000
(Being the acceptance of a B/R received from Agra Branch) (c) Cash A/c
Dr.
10,000
To H.O. A/c
10,000
(Being the cash received from Agra Branch) (d) Goods Sent to Branch A/c
Dr.
20,000
To H.O. A/c
20,000
(Being the goods received from a customer of Agra Branch) (e) H.O. A/c
Dr.
To Debtors A/c
20,000 20,000
(Being the cash collected by Agra Branch from our customer)
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 30
Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014 Journal of Agra Branch Particulars
Dr. (`)
L.F.
(a) Goods sent to Branch A/c Dr. To H.O. A/c (Being the goods received from Delhi Branch) (b) H.O. A/c Dr. To Bill Payable A/c (Being a B/P accepted for Delhi Branch) (c) H.O. A/c Dr. To Cash A/c (Being cash paid to Delhi Branch) (d) H.O. A/c Dr. To Debtors A/c (Being the goods returned by customer of Delhi Branch) (e) Cash A/c Dr. To H.O. A/c (Being the Cash received from a customer of Delhi Branch
Cr. (`)
50,000 50,000 40,000 40,000 10,000 10,000 20,000 20,000 20,000 20,000
Answer 11(c). Workings: [Coal raised i.e., Production = Sales + Closing Stock – Opening Stock.] Year
Sales
+
2009
2,000
+
2010
3,500
2011
Closing Stock
-
Opening Stock
=
Net Production
300
-
Nil
=
2,300
+
400
-
300
=
3,600
4,800
+
600
-
400
=
5,000
2012
5,600
+
500
-
600
=
5,500
2013
8,000
+
800
-
500
=
8,300
In the books of A. Ltd. Memorandum Royalty Statement Year
Quantit y
Rate Royalty `
`
Minimu m Rent `
Short working `
Recoupment `
Short working Short working carried Transferred to forward P&L A/c or ` lapsed `
Payment to Landlord `
2009
2,300
15
34,500
75,000
40,500
---
40,500
---
75,000
2010
3,600
15
54,000
75,000
21,000
---
61,500
---
75,000
2011
5,000
15
75,000
75,000
---
---
61,500
---
75,000
2012
5,500
15
82,500
75,000
---
7,500
---
54,000
75,000
2013
8,300
15 1,24,500
75,000
---
---
---
---
1,24,500
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 31
Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014 Dr. Date
B. S. Ltd. (Landlord) Account Particulars
2009 To Bank A/c
Amount ` 75,000
Date 2009
Particulars By Royalty A/c ” Short-working A/c
75,000 2010 To Bank A/c
75,000
75,000
2010
By Royalty A/c ” Short-working A/c
75,000 7,500
2011
By Royalty A/c
1,24,500
2012
By Royalty A/c
Date
2013
By Royalty A/c
2009
To B. S. Ltd. A/c (Landlord)
Amount ` 40,500
2011
To Balance b/d ” B. S. Ltd. A/c (Landlord)
40,500 21,000
To Balance b/d
61,500
Date 2009
Particulars By Balance c/d
To Balance b/d
2010
By Balance c/d
61,500
61,500 61,500
Amount ` 40,500
40,500 61,500 61,500 2011
By Balance c/d
61,500 2012
1,24,500
Cr.
40,500 2010
82,500
1,24,500
Short-Working Account Particulars
75,000
82,500
1,24,500 Dr.
54,000 21,000
75,000
82,500 2013 To Bank A/c
34,500 40,500
75,000
75,000 2012 To Bank A/c To Short-Working A/c
Amount `
75,000
75,000 2011 To Bank A/c
Cr.
61,500 61,500
2012
By B. S Ltd. (Landlord) A/c ” Profit and Loss A/c
7,500 54,000 61,500
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 32
Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014 Dr.
Royalty Account
Date
Particulars
Amount
Date
Cr. Particulars
Amount
`
`
2009
To B. S. Ltd. A/c
34,500
2009
By Profit & Loss A/c
34,500
2010
To B. S. Ltd. A/c
54,000
2010
By Profit & Loss A/c
54,000
2011
To B. S. Ltd. A/c
75,000
2011
By Profit & Loss A/c
75,000
2012
To B. S. Ltd. A/c
82,500
2012
By Profit & Loss A/c
82,500
2013
To B. S. Ltd. A/c
1,24,500
2013
By Profit & Loss A/c
1,24,500
Q.12. River Traders sells Goods on hire purchase basis at cost plus 50%. The following information is provided for the year:
Stock out with Hire Purchase Customers Stock at shop Instalment Due (Customers still Paying)
Opening ` 90,000 1,80,000 50,000
Closing ` ? 2,00,000 90,000
Cash received from hire purchasers amounted to ` 6,00,000, Goods purchased during the year amounted to ` 6,00,000. Goods repossessed (Installments due ` 20,000) valued at ` 5,000 which have not been included in the Stock at shop at the end. Prepare Shop Stock Account, Goods Sold on Hire Purchase Account, Hire Purchase Stock Account, Hire Purchase Debtors Account and Hire Purchase Adjustment Account. Answer 12. Dr. Particulars To Balance b/d To Purchases
1. Shop Stock Account ` Particulars 1,80,000 By Goods Sold on Hire 6,00,000 Purchase A/c By Balance c/d [Excluding Goods Repossessed] 7,80,000
Cr. ` 5,80,000 2,00,000
7,80,000
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 33
Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014 Dr.
2. Goods Sold on Hire Purchase Account
Cr.
` Particulars
Particulars To Shop Stock A/c To Hire Purchase Adjustment A/c
5,80,000 2,90,000
`
By Hire Purchase Stock A/c
8,70,000
8,70,000 Dr. Particulars
8,70,000
3. Hire Purchase Stock Account ` Particulars
To Balance b/d To Goods Sold on Hire Purchase A/c
90,000 8,70,000
Cr. `
By Hire Purchase Debtors A/c By Balance c/d (b.f.)
6,60,000 3,00,000
9,60,000
Dr. Particulars
9,60,000
4. Hire Purchase Debtors Account ` Particulars
To Balance b/d To Hire Purchase Stock A/c
50,000 6,60,000
Cr. `
By Bank A/c By Goods Repossessed A/c By Balance c/d
6,00,000 20,000 90,000 7,10,000
7,10,000 Dr.
5. Hire Purchase Adjustment Account ` Particulars Particulars
To Hire Purchase Stock Reserve A/c [` 3,00,000x50/150] To Goods Repossessed A/c [Loss on Repossession] [` 20,000 - `5,000]
Cr.
1,00,000 By Hire Purchase Stock Reserve A/c [` 90,000x50/150] 15,000 By Goods Sold on Hire Purchase A/c [`8,70,000x50/150]
` 30,000
2,90,000
To Profit t/f to Profit & Loss A/c 2,05,000 3,20,000
3,20,000
Q.13(a) From Department A sells goods to Department B at a profit of 25% on cost and to Department C at 10% profit on cost. Department B sells goods to A and C at a profit of 15% and 20% on sales, respectively. Department C charges 20% and 25% profit on cost to Department A and B, respectively. Department Managers are entitled to 10% commission on net profit subject to unrealized profit on departmental sales being eliminated. Departmental profits after charging Managers’ commission, but before adjustment of unrealized profit are as under: Particulars Department A 72,000
Department B 54,000
Department C
36,000
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 34
Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014 Stock lying at different departments at the end of the year are as under : Dept. A Dept. B ` ` Transfer from Department A Transfer from Department B
— 28,000
30,000 —
Transfer from Department C
12,000
10,000
Dept. C ` 22,000 24,000 —
Find out the correct departmental Profits after charging Managers’ commission. (b) A firm has two departments- Cloth and Ready-Made clothes department. The cloths are made by the firm itself out of cloth supplied by the cloth department at its usual selling price. From the following figures, prepare departmental Profit and Loss Account for the year 2013: Cloth Department Opening Stock Purchases Sales Transfer to Ready-made clothes department Expenses –Manufactu ring Expenses- selling
1,44,000 10,80,000 12,00,000 2,40,000 — 24,000
Closing Stock
1,80,000
Ready-made clothes Department 28,800 14,400 3,60,000 — 40,800 2,400 36,000
The stocks in the ready-made clothes department may be considered as consisting of 80% cloth and the rest as expenses. The cloth department made a gross profit of 25% in 2012. General expenses of the business as a whole came to ` 1,08,000. Answer 13. (a) Calculation of correct Profit
Profit after charging managers’ Commission Add back : Managers’ commission (1/9)
Less : Unrealized profit on stock (Working Note) Profit before Manager’s commission Less : Commission for Department Manager @10%
Department A Department B Department C ` ` ` 72,000 54,000 36,000 8,000
6,000
4,000
80,000 8,000
60,000 9,000
40,000 4,000
72,000 7,200
51000 5,100
36,000 3,600
64,800
45,900
32,400
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 35
Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014 Working Note : Unrealized Profit on Stock Dept. A `
Dept. B `
Department A
Dept. C `
1 × 22,000 = 2,000 11
8,000
20 × 24,000 = 4,800 100
9,000
1 × 30,000 = 6,000 5
Department B
15 × 28,000 = 4,200 100
Department C
1 × 12,000 = 2,000 6
Total `
4,000
1 × 10,000 = 2,000 5
Answer 13. (b) Dr. Particulars
Departmental Profit & Loss Account for the year 2013 Clothes ReadyParticulars Clothes
To Opening Stock To Purchases To Cloth Department Transfer To Manufacturing expenses To Gross Profit c/d To General Expenses (ratio of sales 24:6) To Selling Expenses To Stock Reserve (closing) To Net Profit
made ` 1,44,000 clothes 28,800 By Sales
` 12,00,000
10,80,000 14,400 By Ready-made ` — 2,40,000 department (transfer) By Closing stock —
40,800
3,96,000
72,000
16,20,000 3,96,000 86,400 21,600 By Gross Profit b/d By Stock 24,000 2,400 7,920 — 2,83,440 48,000 4,01,760
72,000
Cr. Readymade 3,60,000 clothes `
2,40,000 1,80,000
— 36,000
16,20,000 3,96,000 5,760
3,96,000 72,000 —
4,01,760
72,000
Working Notes: (i) Opening stock Reserve Cost of cloth in ready-made department 80% of ` 28,800 Gross Profit @ 25% (ii)
` 23,040 ` 5,760
Gross Profit Rate in cloth department in 2013
Gross Pr ofit 3,96,000 100 or, 100 = 27.5% Sales 14,40,000
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 36
Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014
(iii) Stock Reserve on closing stock in 2011 : 27.5% of ` 28,800 = ` 7,920. Alternatively, stock reserve may be charged to combined Profit and Loss Account. Section – C Q.14 (a).The balance on the Sales Ledger Control Account of Quick Ltd. on Sept. 30,2012 amounted to ` 9,700 which did not agree with the net total of the list of Sales Ledger Balance on that date. Errors were found and the appropriation adjustments when made balanced the books. The errors were: (i)
A Bad Debt amounting to `850 had been written-off in the sales ledger, but had not been posted to the Bad Debts Account, or entered in Control Account. (ii) An item of goods sold to Amar for `450 had been entered once in the Day Book but posted to his account twice. (iii) No entry had been made in the Control Account in respect of the transfer of a debit of `260 from Kumar’s Account in the Sales Ledger to his account in the purchase ledger. (iv) The Discount Allowed column in the Cash Book had been under cast by `280. You are required to give the journal entries, where necessary, to rectify these errors, indicating whether or not any control accounts is affected, and to make necessary adjustments in the Sales Ledger Control Account bringing down the balance. (b) What are the advantages of Self Balancing System? Answer 14. (a) Journal Date
Particulars
L.F.
Debit (`)
Credit (`)
2012 Sept. 30 Bad Debts A/c Dr. To, Sales Ledger Control A/c (Bad Debts written-off without recording in general ledger, now rectified.) Amar’s Account should be credited by `450. It will not affect Control Account. Purchase Ledger Control A/c Dr. To, Sales Ledger Control A/c (Transfer of debit of Kumar’s Account to Purchase Ledger , not recorded, now rectified.) Discount Allowed A/c Dr. To, Sales Ledger Control A/c (Discount allowed account undercast, now rectified.)
850 850
------260 260
280 280
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 37
Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014 In General Ledger Sales Ledger Control Account Dr. Date 2012 Sept. 30
Oct. 1
Particulars To Balance b/d
To, Balance c/d
Amount ` 9,700
Date
Particulars
2012 Sept. 30
By Bad Debts A/c By, Transferred (Purchases Ledger Control) A/c By, Discount Allowed A/c By, Balance c/d
Cr. Amount ` 850
9,700 8,310
260 280 8,310 9,700
Answer 14.(b) The advantages of Self-Balancing System are as follows: (i) If ledgers are maintained under self-balancing system it becomes very easy to locate errors. (ii) This system helps to prepare interim account and draft final accounts, as a complete trial balance can be prepared before the abstraction of individual personal ledger balances. (iii) Various works can be done quickly as this system provides sub-division of work among the different employees. (iv) This system is particularly useful Where there are a large number of customers or suppliers and Where it is desired to prepare periodical accounts. (v) Committing fraud is minimized as different ledgers are prepared by different clerks. (vi) Internal check system can be strengthened as it becomes possible to check the accuracy of each ledger independently. Q.15. The following information is avail from the books of the trader for the period 1 st Jan. to 31st March 2013: (i) Total Sales amounted to ` 70,000 including the sale of old furniture for ` 10,000 (book value is ` 12,300). The total cash sales were 80% less than total credit sales. (ii) Cash collection from Debtors amounted to 60% of the aggregated of the opening Debtors and Credit sales for the period. Discount allowed to them amounted to ` 2,600 (iii) Bills receivable drawn during the period totaled ` 7,000 of which bills amounting to ` 3,000 were endorsed in favour of suppliers.Out of these endorsed bills, a Bill receivable for ` 1,600 was dishonoured for non-payament, as the party became insolvent and his estate realized nothing. (iv) Cheques received from customer of ` 5,000 were dishonoured; a sum of ` 500 is irrecoverable. (v) Bad Debts written-off in the earlier year realized ` 2,500. (vi) Sundry debtors on 1st January stood at ` 40,000. You are required to show the Debtors Ledger Adjustment Account in the General Ledger.
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 38
Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014 Answer 15. In the General Ledger Debtors Ledger Adjustment Account Dr.
Cr. Date
2013 Jan 1 March 31
Particulars
To Balance b/d “ General Ledger Adjustment A/c : - Sales -Bills Receivable Dishonoured -Cheque Dishonoured
Amount (`) 40,000
Date 2013 Jan 1 March 31
50,000 1,600 5,000 96,600
April 1
To Balance b/d
Particulars
By General Ledger Adjustment A/c : Cash Discount Allowed Bills Receivable Bad Debts “ Balance c/d
Amount (`)
54,000 2,600 7,000 2,100 30,900 96,600
30,900
Workings: 1. Computation of Credit Sales Cash Sales were 80% less than Credit Sales. So, if credit sales are ` 100 Cash Sales will be ` 20; Total Sales (Cash+Credit) will be `120. Total Sales (` 70,000 - ` 10,000) = ` 60,000 Amount of Credit sales will be = ` 50,000 2. Cash received Cash received is 60% of opening Debtors plus Credit sales i.e. ` 40,000 + ` 50,000 = ` 90,000 Cash Received ` 90,000 × = ` 54,000 Section – D Q.16. Write short note on Effect of Uncertainties on Revenue Recognition. Answer 16 Para 9 of AS 9 on “Revenue Recognition” deals with the effect of uncertainties on Revenue Recognition. The Para states : (i) Recognition of revenue requires that revenue is measurable and at the time of sale or the rendering of the service it would not be unreasonable to expect ultimate collection. (ii) Where the ability to assess the ultimate collection with reasonable certainty is lacking at the time of raising any claim, e.g., for escalation of price, export incentives, interest etc. revenue recognition is postponed to the extent of uncertainty involved. In such cases, it may be appropriate to recognize, revenue only when it is reasonably certain that the ultimate collection will be made. When there is uncertainty as to ultimate collection, revenue is recognized at the, time of sale or rendering of service even, though payments are made by installments. (iii) When the uncertainty relating to collectability arises subsequent to the time of sale or rendering of the service, it is more appropriate to make a separate provision to reflect the Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 39
Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014 uncertainty rather than to adjust the amount of revenue originally recorded. (iv) An essential criterion for the recognition of revenue is that the consideration receivable for the sale of goods, the rendering of services or from the use by others of enterprise resources is reasonably determinable. When such consideration is not determinable within reasonable limits; the recognition of revenue is postponed. (v) When recognition of revenue is postponed due to the effect of uncertainties, it is considered as revenue of the period in which it is properly recognized. Q.17.(a) The company undertook a contract for building a crane for ` 15 lacs. As on 31.03.13 it incurred a cost of `2.25 lacs and expects that there will be `13.5 lacs more for completing the crane. It has received so far `1.5 lacs as progress payment. (b) Write a note on Internally Generated Computer Software. Answer 17.(a) Para 21 of AS 7 (Revised) ‘Construction Contracts’ provides that when the outcome of a construction contract can be estimated reliably, contract revenue and contract costs associated with the construction contract should be recognized as revenue and expenses respectively with reference to the stage of completion of the contract activity at the reporting date. As per para 32 of the standard, during the early stages of a contact it is often the case that the outcome of the contract cannot be estimated reliably. Nevertheless, it may be probable that the enterprise will recover the contract costs incurred. Therefore, contract revenue is recognized only to the extent of costs incurred that are expected to be recovered. As the outcome of the contract cannot be estimated reliably, no profit is recognized. Para 35 of the standard states that when it is probable that the total contacts costs will exceed total contract revenue, the expected loss should be recognized as an expense immediately. Thus the foreseeable loss of ` 75000 (expected cost `15.75 lacs less contract revenue `15 lacs should be recognized as an expense in the year ended 31st March, 2013. Also, the following disclosures should be given in the financial statements: (i) The amount of contract revenue recognized as revenue in the period; (ii) The aggregate amount of costs incurred and loss recognized up to the reporting date; (iii) Amount of advances received; (iv) Amount of retentions; and (vi) Gross amount due from/due to customers Amount. Answer 17.(b) Internally generated computer software for internal use is developed or modified internally by the enterprise solely to meet the needs of the enterprise and at no stage it is planned to sell it. The stages of development of internally generated software may be categorized into the following two phases: i. Preliminary project stage. i.e., the research phase. ii. Development stage.
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 40
Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014 Preliminary project stage. i.e., the research phase. At the preliminary project stage the internally generated software should not be recognized as an asset. Expenditure incurred in the preliminary project stage should be recognized as an expense when it is incurred. The reason for such a treatment is that at this stage of the software project an enterprise cannot demonstrate that an asset exists from which future economic benefits are probable. Development stage Internally generated software arising at the development stage should be recognized as an asset if, and only if, an enterprise can find out all of the following: The intention of the enterprise to complete the internally generated software and use it to perform the functions needed. The intention to complete the internally generated software can be demonstrated if The enterprise commits to the funding of the software project. There is technical feasibility of installing the internally generated software.
The enterprise is able to use the software;
There is availability of adequate technical, financial and other resources to complete the development and to use the software; and
There is enough capacity to measure the expenditure attributable to the software during its development.
Q.18. Assume a `2,50,000 contract that requires 3 years to complete and incurs a total cost of `2,02,500. The following data pertain to the construction period: Cumulative costs incurred to date Estimated cost yet to be incurred at year end Progressive billing made during the year Collection of billings
Year I 75,000 1,50,000
Year II 1,80,000 20,000
Year III 2,02,500 -
50,000 37,500
1,85,000 1,50,000
15,000 62,500
The firm seeks your advice and assistance in the presentation of accounts keeping in view the requirements of AS – 7. Answer 18 : Particulars Initial amount of Revenue agreed in contract Variation Total Contract Revenue (A) Contract Cost Incurred Contract cost yet to be incurred to complete Total Estimated Contract Cost (B) Estimated Profit (A-B)
Year I 2,50,000
Year II 2,50,000
Year III 2,50,000
2,50,000 75,000 1,50,000
2,50,000 1,80,000 20,000
2,50,000 2,02,500 -
2,25,000 25,000
2,00,000 50,000
2,02,500 47,500
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 41
Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014 Stage of Completion
`75,000 `1,80,000 `2,02,500 100 ; 100 ; 100 `2,25,000 `2,00,000 `2,02,500 =33⅓% =90% =100%
Revenue, Expense and Profit recognized in Profit and Loss Statement Year I Revenue (2,50,000 × 33⅓%) Cost incurred Profits Year II Revenue (2,50,000 × 90%) Cost incurred Profits Year III Contract Revenue Earned Cost incurred
Upto the reporting date 83,333 75,000 8,333
Recognised in Prior Year -
Recognised in Current Year 83,333 75,000 8,333
2,25,000 1,80,000 45,000
83,333 75,000 8,333
1,41,667 1,05,000 36,667
2,50,000 2,02,500 47,500
2,25,000 1,80,000 45,000
25,000 22,500 2,500
Year I 83,333 75,000 8,333 75,000 NIL
Year II 2,25,000 1,80,000 45,000 1,80,000 NIL
Year III 2,50,000 2,02,500 47,500 2,02,500 NIL
50,000 33,333 37,500 83,333
2,35,000 NIL 1,50,000 2,25,000
2,50,000 NIL 62,500 2,50,000
33,333
NIL
NIL
NIL 12,500
10,000 47,500
NIL NIL
Contract Disclosure (AS-7) 1. 2. 3. 4. 5.
6. 7. 8. 9.
10. 11. 12.
Contract revenue recognised Contract expenses recognised Recognised Profit (Loss) Contract cost incurred Contract cost that relates to future activity recognised as an asset Progress Billing Unbilled contract revenue Advances Contract cost incurred and recognised Profit (Less recognised Loss) Gross amount due from customer Gross amount due to customer Retention
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 42
Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014 Section - E Q.19.(a)The following is an extract from the Trial Balance of Utsav Bank Ltd. as on 31st March 2013: Rebate on Bills Discounted on 01.04.2012 Discount Received Analysis of the bills discounted reveals: Amount (`) 2,80,000 8,72,000 5,64,000 8,12,000
` 68,259 (Cr.) 1,70,156 (Cr.) Due Date June 1, 2013 June 8, 2013 June 21,2013 July 1, 2013
You are required to find out the amount of discount to be credited to Profit and Loss Account for the year ending 31st March 2013, and pass journal entries. The rate of discount may be taken at 10% p.a.
(b) Ayurvedic Ltd. produce a bottle of “Drakharista” at a cost of `10 each. They appointed Junior Medical Store of Chennai their agent on the terms that the agent would get commission @ 10% on invoice price of goods sold and an extra commission at 25% on any surplus price realised above invoice price. On 01.07.2012, Ayurvedic Ltd. sent 50 boxes of “Drakharista” each box containing 50 bottles 1 at invoice price showing a profit of 33 % on such invoice price. They spent ` 3,000 for freight 3 and `2,000 for insurance. 5 boxes were totally destroyed in – transit and insurance claim of `2,300 was realized from insurance company. The agent took delivery of the remaining goods and spent `2,000 for duty and `1,000 for freight to carry the goods to the rented godown. He also sent a bill of exchange for `20,000 payable after two months to the consignor as advance. At the end of the year the agent reported that 40 boxes were sold at `18 per bottle and 1 box goods were lost due to bad packing. This would be treated as normal loss. The agent remitted a bank draft for the net amount after deducting his commission, advance money godown rent `800 and selling expenses `200. On 01.01.2013 Ayurvedic Ltd. discounted the bill of `20,000 for `19,800. On 01.03.2013 the bank informed that the bill was dishonoured. Ayurvedic Ltd. demanded the entire amount along with an additional amount of `200 as interest. The Junior agent sent a bank draft for the amount on 15.03.2013. You are asked to show the following accounts in the books of the consignor: (a) Consignment to Madras Account; (b) Madras Medical Stores Account; (c) consignment Stock Account; (d) Consignment stock Destroyed Account; (e) Consignment Stock Reserve Account.
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 43
Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014 Answer 19 (a) : Rebate on bills discounted as on 31st March 2013 (for unexpired portion) is calculated as: Amount (`) On `2,80,000
62 10 365 100
4,756
On `8,72,000
69 10 365 100
16,484
On `5,64,000
82 10 365 100
12,671
On `8,12,000
92 10 365 100
20,467 54,378
Thus, amount of discount to be credited to Profit and Loss Account Particulars
Amount (`)
Rebate on Bill Discounted (01.04.2012) Add: Discount Received Less: Rebate on Bills Discounted (31.03.2013)
Date 2013 March 31
68,259 1,70,156 2,38,415 54,378 1,84,037
In the Books of Utsav Bank Ltd. Journal Entries Particulars Rebate on Bills Discounted A/c Dr. To, Interest and Discount A/c (Transfer of unexpired discount as on 31.03.2013) Interest and Discount A/c Dr. To, Rebate on Bills Discounted A/c (Unexpired discount considered as on 31.03.2013) Interest and Discount A/c Dr. To, Profit and Loss A/c (Interest and Discount transferred to P&L A/c.)
L.F
Debit (`)
Credit (`)
68,259 68,259 54,378 54,378
1,84,037 1,84,037
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 44
Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014 Answer 19 (b) : In the books of Ayurvedic Consignment to Junior Medical Stores Account Dr. Date 2012 July 1.
Particulars
To To
Amount ` 37,500
Goods Sent on Consignment A/c (wn- 1) Bank A/c -Freight 3,000 -Insurance 2,000
Date
To Junior Medical Stores A/c(W.N.3) -Commission To Consignment Stock Destroyed A/c 1 -Loading `12,500 10
Cr. Amount `
2012 Dec.31.
5,000 ,,
Dec.31 To Junior Medical Stores A/c -Duty 2,000 -Freight 1,000 -Godown rent 800 - Selling Expense 200
Particulars
By Goods Sent on Consignment - Loading By Consignment Stock Destroyed A/c By Junior Medical store A/c (W.N.2) -Sale Proceeds (40 x 50 x `18) By Consignment stock A/c (W.N.2)
12,500 4,250
36,000
4,000 3,750 4,500 1,250
1,000
To Consignment Stock Reserve A/c -Loading on closing 4 stock `12,500 50 3,250 Dec.31
To Profit and Loss A/c -Profit on Consignment Transferred 56,500
56,500
Junior Medical Store Account Dr. Date 2012 Dec.31.
Particulars
To Consignment to Junior Medical stores A/c -Sale Proceeds
Amount `
Date 2012 Dec.31
36,000
Particulars
By Bills receivable A/c By Consignment to Junior Medical stores A/c -Expenses - Commission By Bank Draft A/c
Cr. Amount ` 20,000 4,000 4,500 7,500
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 45
Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014 36,000 2013 Mar.1
20,000
To Bank A/c (B/R dishonoured To Interest A/c
200 20,200
36,000 2013 Mar.15
By Bank Draft A/c
20,200 20,200
Consignment Stock Account Dr. Date 2012 Dec.31
Particulars
Amount `
To Consignment to Madras A/c
3,750
Date 2012 Dec.31.
Particulars
Cr. Amount `
By Balance c/d 3,750
3,750
3,750
Consignment Stock Destroyed Account Dr. Date 2012
Particulars
Amount `
To Consignment to Junior Medical Store A/c
Date 2012
Particulars By Consignment to Junior Medical Stores (Loading) A/c By Bank A/c Insurance Claims By Profit and Loss A/c (bal. fig.)
4,250
4,250
Cr. Amount ` 1,250 2,300 700
4,250
Consignment Stock reserve Account Dr. Date 2012 Dec.31.
Particulars To Balance c/d
Amount ` 1,000
1,000
Workings: 1. Invoice value of goods sent Particulars Cost of good sent (50 boxes @ `500(i.e. `10 x 50 bottles) 1 Add: Loading (50% of cost or 33 % of I.P) 3 Invoice Price
Date 2012 Dec.31
Particulars By Consignment to Junior Medical Stores A/c [Loading on Closing Stock]
Cr. Amount ` 1,000 1,000
` 25,000 12,500 37,500
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 46
Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014 2. Valuation of goods destroyed in – transit and unsold stock: Particulars Invoice value of goods sent Add: consignor’s Expenses
` 37,500 12,500 42,500
` 2,500 5 Less: Lost-in-Transit 50
4,250 38,250 3,000 41,250
Add: Non-recurring expenses of Consignee (2,000 + 1,000) I.P. of (50 – 5 – 1) 44 boxes
4 = `3,750. 44 3. Commission payable to Junior Medical Stores Particulars Total Sales Less: Invoice value of goods sold Surplus price Invoice Value of unsold Stock = `41,250 x
` 36,000 30,000 6,000 `
Particulars Ordinary Commission @ 10% on `30,000 = Add: Special Commission @25% on `6,000 =
3,000 1,500 4,500
Note: Loading on ‘Normal Loss’ is not to be considered at all since the cost Price/Invoice Price of such loss is not a charge against the profit on consignment. Q.20. On 1.1.2013, 9% 200 Debentures of ` 100 each of Yuba Ltd. were held as investments by X Ltd. at a cost of ` 18,200. Interest is payable on 31st December. On 1.4.2013, `4,000 of such Debentures were purchased by X Ltd. @ `98 and on 1.1.2013. `6,000 Debentures were sold at `96 ex-interest. On 1.12.2013 `8,000 Debentures were sold @ `99 cum-interest. On 31.12.2013, X Ltd. sold `10,000 Debentures @ `95. Prepare Investment Account for 9% Debentures of Yuba Ltd. in the books of X Ltd. Ignore income-tax. Answer 20: In the Books of X Ltd. Investment Account (9% Debentures of Yuba Ltd. of ` 100 each) Dr. Date
2013 Jan. 1 April 1
Cr. Particulars
To Balance b/d To Bank – Purchases To Profit & Loss A/c
No. of Debentures
Value `
200 40
18,200 3,920
---
400
Date
2013 Jan. 1 Dec. 1 Dec 31
Particulars
No. of Debentures
By Bank – Sale By Bank – Sale By Bank - Sale
60 80 100
Value `
5,760 7,260* 9,500
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 47
Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014 Profit
240
22,520
240
22,520
*Actual amount to be received on sale of debenture =`(80×99) - [`(80×100)×9%]×11/12 =`7,920 - `660 =`7,260. Q.21.Amal and Bina entered into a joint venture for guaranteeing the subscription at par of 1,00,000 shares of ` 10 each of a Joint Stock Company. They agree to share profit and losses in the ration of 2 : 3. The terms with the company are 4½% commission in cash and 6,000 shares of the company as fully paid-up. The public took up 88,000 of the shares and the balance share of the guaranteed issue are taken up by Amal and Bina who provide cash equally. The commission in cash is taken by partners in the ratio of 5:4. The entire shareholding of the joint venture is then sold through brokers – 25% price of ` 9. 50% at a price of ` 8.75; 15% at a price of ` 8.50 and the remaining 10% are taken over by Amal and Bina equally at ` 8 per share. The sale proceeds of the shares are taken by the partners equally. Prepare a Joint Venture Memorandum Account and the separate accounts of Amal and Bina in the books of Bina and Amal, respectively, showing the adjustment of the final balance between Amal and Bina. Ignore interest and income-tax. Answer 21: Memorandum Joint Venture Account Dr.
Cr.
Date
Particulars
?
To Amal (Cost of Shares) ,, Bina (Cost of Shares) ,, Profit to Joint Venture Amal 32,640 Bina 48,960
Amount ` 60,000 60,000
Date ?
81,600
Particulars By Amal (Commission) Bina (Commission) ,, Amal (Sale Proceeds) Bina (Sale Proceeds) ,, Amal (Shares taken) Bina (Shares taken)
2,01,600
Amount ` 25,000 20,000 71,100 71,100 7,200 7,200 2,01,600
In the books of Amal Joint Venture with Bina Dr. Date ?
Particulars To Bank – Cost of Shares ,, Share of Profit ,, Bank – final settlement
Amount ` 60,000 32,640 10,660 1,03,300
Date ?
Particulars By Bank – Commission ,, Bank – Sale Proceeds ,, Shares taken
Cr. Amount ` 25,000 71,100 7,200 1,03,300
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 48
Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014 In the books of Bina Joint Venture with Amal Dr. Date ?
Particulars To Bank – Cost of Shares ,, Share of Profit
Amount ` 60,000 48,960
Date ?
Particulars By Bank – Commission ,, Bank – Sale Proceeds ,, Shares taken ,, Bank – Final settlement
1,08,960
Cr. Amount ` 20,000 71,100 7,200 10,660 1,08,960
Workings: A. Purchase of Shares (1,00,000 – 88,000) = 12,000 @ ` 10 = ` 1,20,000 provided by Amal and Bina equally i.e., ` 60,000 each. B. Calculation of Sales 6,000 Shares taken as Commission 12,000 shares purchase Entire share-holding 18,000 Particulars 25% of 18,000 = 4,500 shares @ 9.00 = 50% of 18,000 = 9,000 shares @ 8.75 = 15% of 18,000 = 2,700 shares @ 8.50 =
` 40,500 78,750 22,950
1,42,200 x ½ = ` 71,100 made by Amal and Bina each. C. Commission in Cash 1,00,000 Shares @ ` 10 = ` 10,00,000 x 4½% = ` 45,000 to be taken by Amal and Bina in the ratio 5:4. D. Unsold Shares taken equally by Amal and Bina 10% of 1,800 shares @ ` 8.00 = ` 14,400 x ½ = ` 7,200 each. Q.22 The factory premises of Toy Ltd. were engulfed in fire on 31st March 2013, as a result of which a major part of stock burnt to ashes. The stock was covered by policy for ` 2,00,000, subject to Average Clause. The records at the office revealed the following information: I. (i) The Company sold goods to dealers on one month credit at dealer’s price which is catalogue price less 15%. A cash discount is allowed @ 5% for immediate payment. (ii) The goods are also sold to agents at catalogue price less 10% against cash payment. (iii) Goods are sent to branches at catalogue price. (iv) Catalogue price is cost + 100%. II. The sale/despatch during the period up to date of fire is – (i) Sale to Dealer ` 6,80,000 (without Cash Discount) (ii) Sale to Dealer ` 6,46,000 (Net of Cash Discount) (iii) Sale of Agent ` 2,70,000 (iv) Despatch to branches ` 6,00,000.
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 49
Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014 III. Stock on 01.01.2013 was ` 5,00,000 at catalogue price. Purchases at cost from 01.01.2013 to 31st March, 2013 ` 12,50,000. IV. Salvaged Stock valued at ` 90,000. Compute the amount of claim to be lodged. Answer 22: In the books of Toy Company Let the Cost price be ` 100. Catalogue price will be ` 200 (i.e., ` 100 + 100%) Agents’ Price will be ` 180 (i.e., ` 200 – 10%) Dealers’ Price will be ` 170 (i.e., ` 200 – 15%) Dealers’ Price when cash discount is allowed will be ` 161.50 (i.e., dealers’ price–5% on `161.50). Ascertainment of Loss of Stock `
Particulars Opening Stock (` 5,00,000 x 50%) Add: Purchases
` 2,50,000 12,50,000 15,00,000
Less: Cost of Goods Sent: (i) (ii) (iii) (iv)
100 = 170 100 To Agents ` 2,70,000 x = 180 100 To Branches ` 6,00,000 x = 200 To Dealers ` 6,80,000 x
To Dealers (enjoying Cash Discount) ` 6,46,000 x
4,00,000 1,50,000 3,00,000
100 = 161.50
4,00,000
12,50,000 Closing Stock at Cost 2,50,000 Less: Salvaged Stock 90,000 Loss of Stock 1,60,000 So, claim to be lodged after applying Average Clause : as policy value is less than the loss of stock Net claim
= Loss of Stock x
= ` 1,60,000 x
Policy Value Stock at thedateof fire
2,00,000 = ` 1,28,000. 2,50,000
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 50
Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014 Q.23 M. Mitali had the following transactions with Sonali: 2013 Jan. March
` Sold goods to Sonali 280 Bought goods from Sonali 150 Accepted Sonali’s draft at 1 month due 120 April Cash paid to Sonali’s due end of May 100 Goods sold to Sonali (will be due on 31st May) 80 May Bought goods from Sonali 200 June M. Mitali drew a bill on Sonali, this day, payable two months after date and this was duly accepted by Sonali 210 Make out an Account Current to be rendered by M.Mitali to Sonali as at 30th June, bringing interest into account @10% p.a. 20 2 3 11 30 11 12
Answer 23: M.Mitali in Account Current with Sonali Dr. Date
Due Date
2013 Jan. 20
2013 Jan. 20
Mar.3
Cr. Particulars
Amount
Days
Products
Date
`
Due Date
Particulars By, Purchase A/c By, Purchases A/c To, B/R A/C To, Balance of products To, Balance c/d
To, Sales A/c
280.00
161
45,080
2013 Mar.2
2013 Mar.2
Apr.6
To, B/P A/c
120.00
85
10,200
May 11
May 11
Apr. 11
Apr.11
100.00
80
8,000
Apr.30
May.31
To, Cash A/c To, sales A/c
80.00
30
2,400
June 11 June 30
Aug 14 Aug 14
June 30
July 1
To, Interest on balance of product for one day @ 10%
To, Balance b/d
12.91
-
592.91
65,680
Amount
Days
Products
` 150.00
120
18,000
200.00
50
10,000
210.00
(-)45
(-)9,450
-
47,130
-
32.91
592.91
32.91
Note: (i) Interest =` 47,130
10 1 `12.91. 100 365
Q.24 (a) R considered the debt of S as irrecoverable and wrote-off that debt of ` 1,200 as bad on 02.03.2013. On 30.6.2013, S paid cash ` 1,000 to R in full settlement of the account and on the date further goods were sold to S invoiced at ` 3,120. S paid by a cheque of ` 1,000 and accepted a bill of exchange for the balance of ` 2,120 at 2 months. R discounted the bill at the bank for ` 2,040. The bill at maturity was returned to R as dishonoured, noting charge being ` 5. Next day S accepted a fresh bill at one month and paid cash for the noting charge and interest at 6%. A day before due date, S paid cash ` 640 and accepted another bill for the balance sum at 3 months. After a month, thereafter, S, having become insolvent, paid a compensation of 50 p. in the rupee. Show the entries in the books of R. Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 51
65,680
Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014 (b) A firm sends goods on sale or return basis, customers having the choice of returning the goods within a month. During May, 2013, the following are the details of goods sent: Date
Customer
May 2 May 8 May 12 May 18 May 20 May 27
P B Q D E R
Value (`) 15,000 20,000 28,000 30,000 10,000 26,000
Within the stipulated time P and Q returned the goods and B, D and E signified that they have accepted the goods. Show in the books of the firm the Sale or Return Account and Customers for Sale or Return Account as on 15th June, 2013. Answer 24(a):
Date 2013 March 2 June 30. June 30 June 30.
June 30.
Sept. 3. Sept. 4.
Sept. 4.
In the Books of R Journal Particulars Bad Debts A/c Dr. To S A/c (Amount due to S written-off as bad.) Bank A/c Dr. To Bad Debts Recovery A/c (Amount recovered from S written-off as bad.) SA/c Dr. To Sales A/c (Goods sold to S.) Bank A/c Dr. Bills Receivable A/c Dr. To S A/c (cash and bill received from S.) Bank A/c Dr. Discount A/c Dr. To Bills receivable A/c (Bill discount by the bank.) S A/c Dr. To bank A/c (Bill dishonoured by S, noting charge being `5.) S A/c Dr. To Interest A/c (Interest receivable from S on `2,120 @ 6% for 1 months.) Bank A/c Dr. To S A/c
L.F.
Debit ` 1,200.00
Credit ` 1,200.00
1,000.00 1,000.00 3,120.00 3,120.00 1,000.00 2,120.00 3,120.00 2,040.00 80.00 2,120.00 2,125.00 2,125.00 10.60 10.60
15.60 15.60
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 52
Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014 (Cash received from, S for interest and noting charges) Sept. 4. Oct. 7. Oct. 7. Oct. 7. Nov. 7. Nov. 7.
Bills Receivable A/c Dr. To S A/c (Fresh bill drawn and accepted by S.) S A/c Dr. To Bills receivable A/c (Bill dishonoured on maturity.) Bank A/c Dr. To S A/c (Cash received from S as part payment.) Bills receivable A/c Dr. To S A/c (Fresh bill drawn and accepted by S.) S A/c Dr. To Bills receivable A/c (Bill dishonoured as S became insolvent) Bank A/c Dr. Bad debts A/c Dr. To S A/c (Cash received from S @ 50 in the rupee and the balance proved bad.
2,120.00 2,120.00 2,120.00 2,120.00 640.00 640.00 1,480.00 1,480.00 1,480.00 1,480.00 740.00 740.00 1480.00
Answer 24(b): In the Sale or Return Ledger of the firm.......... Sale or Return Total Account (Folio............) Dr. Date 2013
Particulars
L.F.
Amount `
15.6. To Sundries — Sales
Date 2013
Particulars
`
60,000 15.6. By Sundries
[20,000+30,000+10,000] " Sundries — Returns
Cr. L.F. Amount
1,29,000
(Goods sent on Sale or Return)
43,000
[15,000 + 28,000] ‘’ Balance c/f
26,000 1,29,000
1,29,000
P. Account Dr. Date 2013
Particulars
2.5. To Sale or Return A/c
L. Amount Date F. 2013 `
Particulars
15,000
By Sale or Return A/c (Return)
Cr. L. Amount F. ` 15,000
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 53
Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014 B. Account Dr. Date 2013 8.5.
Particulars
L. Amount Date 2013 ` F.
Particulars
20,000
By Sale or Return A/c (Sales)
To Sale or Return A/c
Cr. L. Amount F.
` 20,000
Q. Account Dr. Date Particulars 2013 12.5. To Sale or Return A/c
L. Amount Date Particulars 2013 ` F. 28,000 By Sale or Return A/c (Returns)
Cr. L. Amount F. ` 28,000
D. Account Dr. Date 2013
Particulars
L. Amount Date 2013 ` F.
Particulars
30,000
By Sale or Return A/c (Sales)
18.5. To Sale or Return A/c
Cr. L. Amount ` F. 30,000
E. Account Dr. Date Particulars 2013 20.5. To Sale or Return A/c
Cr. Amount Date Particulars L. Amount 2013 F. ` ` F. 10,000 By Sale or Return A/c (Sales) 10,000 L.
R. Account Dr. Date 2013
Particulars
27.5. To Sale or Return A/c
L. F.
Amou Date nt 2013
Particulars
` 26,000 15.6. By Balance c/f
Cr. L. Amount F. ` 26,000
Note: It has been assumed that June 15, 2013 is the closing day of the period concerned. Section – F Q. 25. When closing the books of a bank on 31.12.2012 you find in the loan ledger an unsecured balance of ` 2,00,000 in the account of a merchant whose financial condition is reported to you as bad and doubtful. Interest on the same account amounted to ` 20,000 during the year. How would you deal with this item of interest in 2012 account? During the year 2013, the bank accepts 75 paise in the rupee on account of the total debt due up to 31.12.2012.
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 54
Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014 Show the entries and the necessary accounts showing the ultimate effect of the transactions in 2013 books of account under Interest Suspense Method. Answer 25. Under Interest Suspense Method When preparing the 2012 accounts the sum of ` 20,000 due from the merchant on account of interest should not be carried to Profit and Loss Account, because its recovery was doubtful. It should, therefore, be transferred to an Interest Suspense Account which would appear as a liability in Balance Sheet on 31.12.2012. In the Books of Bank Journal Date 2012 Dec. 31
Particulars
L.F.
Debit (`)
Merchant A/c Dr. To Interest Suspense A/c (Interest due transferred to Interest Suspense A/c)
20,000
Interest Suspense A/c Dr. Bad Debts A/c Dr. To Merchant A/c (Interest not received and balances transferred to Bad Debts A/c)
5,000 50,000
20,000
55,000
1,65,000
Cash A/c Dr. To Merchant A/c (Amount received @ 0.75 p in the rupee from the merchant.) Interest Suspense A/c To Profit and Loss A/c (Interest received out of Interest Suspense transferred)
Date
1,65,000
15,000
Dr.
15,000
In the Books of the Bank Merchant’s Account
Dr. Particulars
2012 To Balance b/d Dec. 31 Int. Suspense A/c
`
Date
2,00,000 2012 20,000 Dec. 31 2,20,000
Credit (`)
Cr. Particulars
By Balance c/d
` 2,20,000
2,20,000
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 55
Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014
2013 Jan. 1
2,20,000
1,65,000
To Balance b/d
2,20,000
2013 Dec. 31
By Cash (Dividend @ 75p in the rupee) “ Int. Suspense A/c (amount of Int. not covered) “ Bad Debts
5,000
50,000 2,20,000
Interest Suspense Account Dr.
Cr.
Date 2012 Dec. 31
Particulars To Balance c/d
2013 Dec. 31 To Merchant’s A/c “ Profit & Loss A/c
`
Date
20,000 2012 By Merchant’s A/c Dec. 31 20,000
5,000 15,000
2013 Jan. 1
`
Particulars
By Balance b/d
20,000
20,000 20,000
20,000
20,000
Notes: 1. Interest amounting to `20,000 due from customer has been debited to him by crediting Interest Suspense Account (and not to Interest A/c as its recovery is doubtful) and Interest Suspense A/c will appear in the liability side of the Balance Sheet. 2. Actual amount of interest which has been received in cash, i.e. `15,000, is transferred to P&LA/c. Q. 26. The following balances appeared in the books of Happy Mutual Life Assurance Society Ltd. as on 31st March 2014: Dr. Particulars Claims less reassurance paid during The year By death By maturity Annuities Furniture and Office Equipment at
Cr. (` in lakh) Particulars Life Assurance Fund at the beginning of the year 4,400 Premium less Reassurances 3,000 Claims less reassurances 12 outstanding
(` in lakh) 1,00,000 30,000
At the beginning of the year:
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 56
Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014 cost (including `80 lakh bought during the year) Printing and Stationery Cash with Bank in current account Cash and stamp in hand Surrenders less Reassurances Commission Expenses of Management Sundry Deposits with Electricity Companies Advance Payment of Tax Sundry Debtors Agents Balances Income Tax Income Tax on Interest, Dividend and Rents Loans and Mortgages Loans on Policies Investments (`500 lakh deposited with Reserve Bank of India) House Property at Cost (including ` 170 lakh added during the year)
By death 500 By maturity
1,800 1,200
Credit balances pending 154 adjustments 2,700 Consideration for annuities granted 60 Interest, dividends and rents 80 Registration and other Fees
120 4 3,600
500 Sundry Deposits 6,200 Taxation Provision 2 Premium Deposits Sundry Creditors
4 200 600 2,300
100 Contingency Reserve 100 Furniture and Office Equipment
700 300
200 Depreciation Account 900 Building Depreciation Account
80
1,000
600
300 6,500 1,04,000
10,800
1,41,508
1,41,508
From the foregoing balances and the following information, prepare the Balance Sheet of Happy Mutual Life Assurance Society Ltd. as on 31st March 2014 and its Revenue Account for the year ended on that date: (i) Claims less reassurance outstanding at the end of the year: By death ` 1,200 lakh, By maturity ` 800 lakh. (ii) Expenses outstanding ` 120 lakh and prepaid ` 30 lakh. (iii) Provide ` 90 lakh for depreciation on buildings, ` 30 lakh for depreciation on furniture and office equipment and ` 220 lakh for taxation. (iv) Premiums outstanding `4056 lakh, commission thereon ` 130 lakhs. (v)
Interests, dividends and rents outstanding (net) ` 60 lakh and interests and rents accrued (net) ` 700 lakh.
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 57
Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014 Answer 26.
Happy Mutual Life Assurance Society Ltd. Form A-RA Revenue Account for the Year Ended 31 st March 2014 Particulars
Schedule
Premium earned-net
1
Current Year
Previous Year
(` in lakh)
(` in lakh)
34,056
Investment from Investments Interest, Dividends and Rent(Gross)(3,600+60+700)
4,360
Other Income: Annuities granted
4
Registration and other Fees
4
Total (A)
38,424
Commission
2
630
Operating Expenses
3
6,564
Provision for Tax
1,520
Total (B)
8,714
Benefits paid (net)
4
Total (c)
6,492 6,492
Surplus (D)=A-B-C
23,218 Form A-BS Balance Sheet as on 31st March 2014 Particulars
Schedule
Current Year Previous Year (` in lakh)
Share Capital
5
Reserves and Surplus
6
1,23,518
Borrowings
7
2,500
Total
(` in lakh)
1,26,018
Application of Funds Investment
8
1,13,610
Loan
9
6,800
Fixed Assets
10
390 1,20,800
Current Assets: Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 58
Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014 Cash and Bank Balance
11
2,760
Advances and Other Assets
12
5,748
Sub-Total (A)
8,508
Current Liabilities
13
3,070
Provisions
14
220
Sub-Total (B) Net Current Assets=Sub-Total (A)-Sub-Total (B)
3,290 1,26,018
Note: Since the question is silent about the preparation of Profit & Loss Account, as such (From APL) is not prepared. Thus Provision for Taxation and adjustments are shown in Revenue Account. Schedules forming parts of Financial Statements Workings: Schedule 1: Premium Earned
(` in lakh)
Premium Add: Outstanding
30,000 4,056 34,056
Schedule 2: Commission
(` in lakh)
Commission Paid Add: Commission on Re-Insurance Accepted
500 130 630
Schedule 3: Operating Expenses
(` in lakh)
Expenses of management Add: Outstanding
6,200 120
Less: Prepaid
6,320 30
Printing & Stationary Depreciation on: Building Furniture
(` in lakh)
6,290 154
90 30
120 6,564
Schedule 4: Benefit (Paid)
(` in lakh)
(` in lakh)
Insurance Claims: By DeathAcademics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 59
Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014 Paid Add: Outstanding at the ends
4,400 1,200
Less: Out. at the beginning
5,600 1,800
By MaturityPaid Add: Outstanding at the end
3,000 800
Less: Outstanding at beginning
3,800 1,200
3,800
2,600
Annuities
12
Surrender, less Re-insurance
80 6,492
Schedule 5: Share Capital
(` in lakh)
Share Capital
Nil Nil
Schedule 6: Reserves & Surplus
(` in lakh)
Contingency Reserve Add: Other Life Assurance Fund
300 1,23,218 1,23,518
Schedule 7: Borrowings
(` in lakh)
Premium Deposit Add: Sundry Deposits
2,300 200 2,500
Schedule 8: Investments Investment in House Property Additions Less: Depreciation Other Investments
(` in lakh)
(` in lakh)
10,630 170 10,800 690
10,110 1,03,500 1,13,610
Schedule 9: Loans Mortgage Policies
(` in lakh) 300 6,500 6,800
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 60
Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014
Schedule 10: Fixed Assets
(` in lakh)
Furniture (420-30)
390 390
Schedule 11: Cash and Book Balance
(` in lakh)
Cash + Stamps Bank at Current A/c
60 2,700 2,760
Schedule 12: Advance and Other Assets Advances: Prepaid Expenses Adv. Payment of Tax Other Assets: Int. Dividend & Rent Outstanding Int. Dividend Rent Accruing Outstanding Premium Agents’ balance Sundry Debtors Deposit with RBI Deposit with Electricity Co.
(` in lakh)
(` in lakh)
30 100
130 60 700 4,056 200 100 500 2 5,748
Schedule 13: Current Liabilities Creditors Outstanding Expenses Com. Due but not paid Claims outstanding Credit balance Pending adjustments
(` in lakh) 700 120 130 2,000 120 3,070
Schedule 14: Provisions
(` in lakh)
Provisions for Tax
220 220
Schedule 15: Miscellaneous
(` in lakh)
Misc. Expenses
Nil Nil
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 61
Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014 Q. 27. In Calculate Rebate on Bills discounted as on 31 December, 2011 from the following data and show journal entries: Date of Bill
`
Period
Rate of Discount
(i)
15.10.2011
50,000
5 months
8%
(ii)
10.11.2011
30,000
4 months
7%
(iii)
25.11.2011
40,000
4 months
7%
(iv)
20.12.2011
60,000
3 months
9%
Answer 27. (a) Calculation of Rebate on Bills Discounted `
Due Date
Days after 31 December, 2013
Discount Rate
`
50,000
18/03/2012
31+29+18=78
8%
852.46
30,000
13/03/2012
31+29+13=73
7%
418.85
40,000
28/03/2012
31+29+28=88
7%
673.22
60,000
23/03/2012
31+29+23=83
9%
1,224.59
Total
Date Dec.31
3,169.12
Particulars Interest and Discount Account
Dr. ` Dr.
To, Rebate on Bills Discounted
Cr. `
3,169.12 3,169.12
(Being the provision for unexpired discount required at the end of the year)
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 62
Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014 Q. 28. The Trial Balance of Vivan Electric Supply Ltd. For the year ended 31st March, 2013 is as below: Dr. Cr. Particulars
Amount (` in ‘000)
Share Capital: Equity Shares of `10 each 14% Preference Shares of `100 each Patents and trade mark 15% Debentures 16% term loan Land (additons during the year 20,50) Building (additions during the year 50,80) Plant & Machinery Mains Meters Electrical Instruments Office Furniture Capital Reserve Contingency Reserves General Reserve Transformers Opening Balance of Profit & Loss Account Profit for the year 2012-13 subject to adjustments Stock in hand Sundry Debtors Contingency Reserve Investments: SBI Bonds-2020 Other Investments Cash & Bank Public lamps Depreciation Fund Sundry Creditors Proposed dividend
Amount (` in ‘000)
50,000 15,000 2,504 24,700 15,300 12,450 35,134 57,058 4,524 3,150 1,530 2,450 4,020 12,030 1,000 16,440 350 5,000 12,050 6,246 10,010 2,000 3,254 3,040
25,816 6,524 1,71,840 1,71,840 12,100 During 2012-13 1,00,000, 14% Preference Shares were redeemed at a premium of 10% out of proceeds of fresh issue of equity shares of necessary amounts at a premium of 10% Required prepare for the above period general balance sheet as on 31st March, 2013 as per the revised schedule VI: Adjustments: 1. Transfer to Contingency Reserve ` 1,70,000 & to General Reserve ` 2,00,000 2. Loss on Contingency Reserve Investment ` 10,000 3. Make a Provision for debts considered doubtful of ` 1,014,000 Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 63
Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014 Answer 28. Vivan Electric Supply Ltd. Balance Sheet as at 31st March, 2013 Particulars
I.
Note No.
(` in ’000)
EQUITYANDLIABILITIES (1) Shareholders’ Funds (a) Share Capital (b) Reserves and Surplus (2) Non-Current Liabilities (a) Long-term Borrowings
1 2
65,000 21,376
3
40,000 6,524
(3) Current Liabilities (a) Trade Payables
4
(b) Short-Term Provisions
12,100 1,45,000
Total II.
ASSETS (1) Non-Current Assets (a) Fixed Assets 5
(i) Tangible Assets (ii) Intangible Assets
6
(b) Non-Current Investments (2) Current Assets (a) Inventories
7
(b) Trade Receivables (c) Total
Cash and Cash Equivalents
1,09,960 2,504 12,000 12,050 5,232 3,254 1,45,000
Notes to Accounts: 1. Share Capital (` in ’000) Authorised Capital 50,00,000 shares of 10 each 2,50,000 14% Pref. Shares of 100 each
50,000 25,000 75,000
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 64
Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014 Issued & Subscribed Capital 50,00,000 shares of 10 each 2,50,000 14% Pref. Shares of 100 each Less: 1,00,000 14% Pref. Shares of 100 each
50,000 25,000 (10,000) 65,000
2. Reserves and Surplus (` in ’000) Capital Reserve
(` in ’000) 4,020
Contingency Reserve (12,030 + 170 – 10)
12,190
General Reserve (1,000 + 200) Profit & Loss Account
1,200
Opening Balance
350
Add: Profit for the period
5,000
Less: Transfer to General Reserve
(200)
Less: Transfer to Contingency Reserve Less: Provision for Doubtful Debts Total
(170) (1,014)
3,966 21,376
3. Long-term Borrowings (` in ’000) 15% Debentures
24,700
16% Term Loan
15,300 40,000
4. Short-term Provisions (` in ’000) Proposed Dividend
12,100 12,100
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 65
Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014 5. Tangible Assets (` in ’000) Land (10,400 + 2,050)
12,450
Building (30,054 + 5,080)
35,134
Plant & Machinery
57,058
Mains
4,524
Meters
3,150
Electrical Instruments
1,530
Office Furniture
2 450
Transformers
16 440
Public lamps
3 040
Less: Depreciation Fund
(25,816)
Total
1,09,960 6. Non-Current Investments (` in ’000)
SBI Bond-2020 (10,010 – 10)
10,000
Other Investments
2,000 12,000
7. Trade Receivables (` in ’000) Sundry Debtors Less : Provision for Doubtful Debts
6,246 (1,014) 5,232
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 66
Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014 Q. 29. Bijli Electric Company decides to replace one of its old plant by an improved plant with larger capacity. The cost of the new plant is ` 8,00,000. Materials and Labour earlier and now are in the ratio of 4 : 6. Original cost of the old plant is ` 1,50,000. Materials cost has gone up by 2½ times and Labour cost by 3 times since then. Old materials worth `5,000 were used in the construction of the new plant and ` 15,000 were realised from the sale of old materials. Give the necessary Journal Entries for recording the above transactions. Answer 29: Journal Entries Particulars L.F. Dr. Plant A/c To Bank A/c To Replacement A/c (Being the additional cost incurred and old materials utilized in new plant) Dr. Replacement A/c To Bank A/c (Being the current cost of replacement) Dr. Bank A/c To Replacement A/c (Being the old materials sold) Dr. Revenue A/c To Replacement A/c (Being the balance of replacement account transferred to Revenue Account)
Amount (`) 3,85,000
Amount (`) 3,80,000 5,000
4,20,000 4,20,000 15,000 15,000 4,00,000 4,00,000
Working Note: Old cost of the plant ` 1,50,000: Material = 1,50,000 x 40/100 = 60,000 Labour = 1,50,000 x 60/100 = 90,000 Particulars
Amount (`)
Amount(`)
Cost of material increased by 250% =`60,000×250%
1,50,000
Cost of labour increased by 300% = `90,000×300%
2,70,000
Current cost of replacing old plant
4,20,000
Less: Sale of old materials Old materials utilized in new plant
15,000 5,000
20,000
Amount to be transferred to Revenue Account
4,00,000
Cash cost of new plant
8,00,000
Add: Old materials utilized
5,000 8,05,000
Less: Current cost of replacing old plant
4,20,000
Amount to be capilised
3,85,000
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 67
Revisionary Test Paper_Intermediate_Syllabus 2012_Jun2014 * The cost of new plant has been given as `8,00,000 in the question. It has been assumed in the above solution that this cost does not include the cost of old materials used in the construction of new plant worth `5,000. Q. 30. Given below are details of interest on advance of a Commercial Bank as on 31.03.2013: (` in Lakhs) Particulars Interest Earned Interest Received (`) (`) Performing Assets Term Loan 730 480 Cash Credit and Overdraft 4,500 3,720 Bills Purchased and Discounted 900 900 Non-Performing Assets Term Loan 450 20 Cash Credit and Overdraft 900 72 Bills Purchased and Discounted 600 120 Find out the income to be recognized for the year ended 31st March 2013. Answer: As per RBI Circular, interest on non-performing assets are considered on Cash Basis whereas interest on performing assets are considered on Accrual Basis. Statement Showing the Recognition of Income Particulars A. Interest on Term Loans (i) Performing Assets (i) Non-performing Assets B. Interest on Csah Credit and Overdraft (i) Performing Assets (ii) Non-performing Assets C. Interest on Bills Purchased and Discounted (i) Performing Assets (ii) Non-performing Assets Income to be Recognized
Amount `
Amount ` 730 20
750
4,500 72
4,572
900 120
1,020 6,342
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 68
